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arXiv · 1608.02523

Role of Intensive and Extensive Variables in a Soup of Firms in Economy to Address Long Run Prices and Aggregate Data

Ali Hosseiny·Mauro Gallegati
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Abstract

We review the production function and the hypothesis of equilibrium in the neoclassical framework. We notify that in a soup of sectors in economy, while capital and labor resemble extensive variables, wage and rate of return on capital act as intensive variables. As a result, Baumol and Bowen's statement of equal wages is inevitable from the thermodynamics point of view. We try to see how aggregation can be performed concerning the extensive variables in a soup of firms. We provide a toy model to perform aggregation for production and the labor income as extensive quantities in a neoclassical framework.

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Ali Hosseiny, Mauro Gallegati. 2016-08-08. Role of Intensive and Extensive Variables in a Soup of Firms in Economy to Address Long Run Prices and Aggregate Data. https://doi.org/10.1016/j.physa.2016.11.130

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