Inferring Agent Behavior and Economic Information, with Free Entry and Exit of Firms

8 Pages Posted: 28 Aug 2011

See all articles by Hernan Vallejo

Hernan Vallejo

Universidad de los Andes

Miguel Andrés Espinosa

Universidad de los Andes, Colombia - Department of Economics

Date Written: June 3, 2011

Abstract

This article proposes an identity regarding economic outcomes when producers maximize profits, with free entry and exit of firms. The identity links consumer and producer theory and leads to several results that contribute to understand what should - and should not - be expected under the assumptions made, from the behavior of firms and households, and from the technology of a firm. Given that unit prices are usually known, the identity also allows to infer the value of a range of economic variables, when reasonable information is available on the price elasticity of the residual demand, the marginal revenue associated to the residual demand, the marginal cost or the elasticity of scale.

Keywords: price elasticity of demand, elasticity of scale, free entry and exit of firms, homogeneous production function

JEL Classification: D20, D21, D24, D40

Suggested Citation

Vallejo, Hernan and Espinosa, Miguel Andrés, Inferring Agent Behavior and Economic Information, with Free Entry and Exit of Firms (June 3, 2011). Documento CEDE No. 2011-25, Available at SSRN: https://ssrn.com/abstract=1917609 or http://dx.doi.org/10.2139/ssrn.1917609

Hernan Vallejo (Contact Author)

Universidad de los Andes ( email )

Carrera 1a No. 18A-10
Bogota
Colombia
57-1-3394949 (Phone)
57-1-3324492 (Fax)

HOME PAGE: http://economia.uniandes.edu.co/vallejo

Miguel Andrés Espinosa

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

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