The Firm in General Equilibrium Theory

  • Kenneth J. Arrow


In classical theory, from Smith to Mill, fixed coefficients in production are assumed. In such a context, the individual firm plays little role in the general equilibrium of the economy. The scale of any one firm is indeterminate, but the demand conditions determine the scale of the industry and the demand by the industry for inputs. The firm’s role is purely passive, and no meaningful boundaries between firms are established. No doubt the firm or the entrepreneur was much discussed and indeed given a central role in the informal parts of the discussion; the role was that of overcoming disequilibria. When profit rates were unequal, profit-hungry entrepreneurs moved quickly, with the end-result of eliminating their functions.


Competitive Equilibrium Price Vector Initial Endowment Price Expectation Feasible Allocation 
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© The President and Fellow of Harvard College 1971

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  • Kenneth J. Arrow

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