A Critical Review of Competitive Firm’s Theory | Chapter 02 | Current Perspective to Economics and Management Vol. 2
Aims:
In the first place, to demonstrate that economic behavior that neoclassical
theory attributes to competitive firms is technically inefficient since it does
not correspond to the highest possible internal rate of return, which implies
the violation of the first theorem of welfare. Secondly, overcoming error in
the economic behavior of competitive firms gives rise to the basic results of
the theory of nonexistence of the labor market (TNLM), on which the theorem of
superiority, a basic element of its construction, is finally proved.
Methodology:
The demonstration is carried out through a theorem based on the free entry and
exit criterion, fully respecting the initial conditions and hypotheses of
neoclassical theory. For all these effects the mathematics of restricted
maximization and some concepts of convex optimization are used.
Results:
We show that with any internal rate of return higher than the one inherent to
the maximization of profits and the same amount of resources determined by
current walrasian prices, it is possible to produce more in a more competitive
industry, which in turn means higher financing levels for consumers and
therefore better situations in the sense of Pareto.
Conclusion:
It thus implies that neoclassical theory explains the operation of a market
economy in which firms operate inefficiently even though they could overcome
their own results; that is acting irrationally. Since efficient theoretical
explanations are a prerequisite to efficient predictions, and the latter,
necessary to establish efficient criteria to control explained phenomena, the
evidence of explanatory inefficiencies shown in this research, have exposed the
need to build efficient explanations of the functioning of a market economy. To
that end seeks to contribute the theory of nonexistence of the labor market,
whose pillars are the criticism and reconstruction of the theory of producer.
The demonstration that the inefficiency of the theory of firm in neoclassical
tradition violates the first welfare theorem, injures the norm that guides all
axiomatic deductions of this logical system, i.e. the perfectly competitive
equilibrium. It then imposes the need to replace that norm by any other
descriptive notion provided by a robust theory to orient the sense that the criteria
of economic policy should follow, for the sake of a more desirable economic
order than the current. Apparently, this concept should be to rethink the
demonstrations of existence of a general competitive equilibrium, this time
based on the correction of the analytical error of neoclassical theory.
Author(s) Details
Fernando Antonio Noriega
Ureña
Department of Economics,
Autonomous Metropolitan University, Campus Azcapotzalco, Mexico.
Comments
Post a Comment