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Media type:
E-Article
Title:
The Allocation of Resources in the Presence of Indivisibilities
Contributor:
Scarf, Herbert E
Published:
American Economic Association, 1994
Published in:
Journal of Economic Perspectives, 8 (1994) 4, Seite 111-128
Language:
English
DOI:
10.1257/jep.8.4.111
ISSN:
0895-3309
Origination:
Footnote:
Description:
A major theme of economic theory is that optimality, at the level of the firm or the economy as a whole, can be reached by profit maximization using competitive prices. The conclusion requires the assumption that the production possibility set be convex and is not valid if production displays economies of scale based on significant indivisibilities. The paper provides a specific quantity test for detecting optimality in the presence of indivisibilities and suggests that it may be useful to view the large firm as an algorithm for solving programming problems in which some of the variables assume integral values.