The exploration of the conditions of equilibrium of the individual firm has in recent times occupied to an increasing degree the attention of economists. This, as should be evident, was a necessary development of the so-called 'particular equilibrium' method of analysis developed by Marshall and especially of the conception of the 'supply-curve': the postulation of a definite functional relationship between price and rate of supply in the various industries. The latter, though an integral part of the Marshallian system, was by no means such a straightforward self-evident conception as its counterpart, the demand curve. The reasons for this asymmetry are not far to seek. The assumption that buyers respond to price stimuli in a definite and unequivocal manner (which is all that the demand curve implies) can be deduced from the general proposition that they have a definite system of wants and act in accordance with it; that is to say, it can be directly derived from the general postulates of the subjective theory of value. But the assumption that sellers do the same is a much more complex affair--at any rate in a world where production is carried on on a co-operative basis. It implies that there exists a mechanism which translates technical and psychological resistances into cost computations in such a way that a definite amount of a commodity will be offered by each producing unit in response to any price. It implies, therefore, that there is a definite relationship between the costs incurred and the amount produced for each individual source of supply and between price and the number of such producing units; and finally between price and some derivative of the cost function of the individual producing unit. Briefly then, it assumes two things: perfect
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Publication information: Book title: Firms, Organizations and Contracts:A Reader in Industrial Organization. Contributors: Peter J. Buckley - Editor, Jonathan Michie - Editor. Publisher: Oxford University Press. Place of publication: Oxford. Publication year: 1996. Page number: 23.
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