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Role of intensive and extensive variables in a soup of firms in economy to address long run prices and aggregate data

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  • Hosseiny, Ali
  • Gallegati, Mauro
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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  • Hosseiny, Ali & Gallegati, Mauro, 2017. "Role of intensive and extensive variables in a soup of firms in economy to address long run prices and aggregate data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 470(C), pages 51-59.
    • Handle: RePEc:eee:phsmap:v:470:y:2017:i:c:p:51-59
    DOI: 10.1016/j.physa.2016.11.130
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