The Behavior of Firms

Abstract

In this chapter, the neoclassical theory of a firm is dynamized analogously with Newtonian mechanics. A profit-seeking firm creates “economic forces” acting upon the productions and prices of different goods, and these change according to the resultant of forces acting upon them. The forces acting upon the production of a profit-seeking firm are shown to create either stable or non-stable behavior, and the neoclassical theory is shown to correspond to the zero-force situation in this. Non-stable behavior occurs in situations where the profit maximizing flows of productions do not exist, and these cases—which cannot be modeled in the neoclassical framework—are shown to lead to either permanent growth in production or to bankruptcy.