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Rationality in the Theory of the Firm

Russell K. Standish, Stephen L. Keen

Abstract

We have previously presented a critique of the standard Marshallian theory of the firm, and developed an alternative formulation that better agreed with the results of simulation. An incorrect mathematical fact was used in our previous presentation. This paper deals with correcting the derivation of the Keen equilibrium, and generalising the result to the asymmetric case. As well, we discuss the notion of rationality employed, and how this plays out in a two player version of the game.

Published on 10 Jul 2015 in World Economic Review No 5, July 2015