Zero-Profit Condition

Abstract

The profit-function for a competitive firm may be defined as

$$ \pi \left(p,w\right)= \max\;p\cdot f(x)-w\cdot x $$

where p, w are the prices of the output, y = f(x), and inputs, respectively. If f displays increasing returns to scale π will not be defined. If f displays constant returns to scale π may not be defined.

This chapter was originally published in The New Palgrave: A Dictionary of Economics, 1st edition, 1987. Edited by John Eatwell, Murray Milgate and Peter Newman