A New Approach to the Theory of the Firm

Abstract

If the volume of current writing on the subject can be accepted as evidence, it is clear that economists are becoming increasingly concerned by the fact that business men do not use or even understand the jargon of marginalism, despite the fact that it would seem to be in their interests to operate their firms according to the rule “marginal costs equals marginal revenue determines optimum output”. Most attempts so far made to explain this phenomenon have followed one or the other of two lines. Either it is argued that the rules of thumb developed by the business man achieve at least approximately the same result as would the strict application of marginal theory, or that short‐period difficulties which are assumed away by the theorist render the operation of the rule impossible or undesirable.

Citation

Gabor, A. and Pearce, I.F. (1979), "A New Approach to the Theory of the Firm", International Journal of Social Economics, Vol. 6 No. 5, pp. 291-303. https://doi.org/10.1108/eb013843