A BEJTE Contributions article.

Abstract

We utilize the analytical construct of a stochastic supply function to provide an aggregate representation of a finite collection of standard deterministic supply functions. We introduce a consistency postulate for a stochastic supply function that may be satisfied even if no underlying deterministic supply function is rationalizable in terms of profit maximization. Our consistency postulate is nonetheless equivalent to a stochastic expansion of supply inequality, which summarizes the predictive content of the traditional theory of competitive supply. A number of key results in the deterministic theory follow as special cases from this equivalence. In particular, it yields a probabilistic version of the law of supply, which implies the traditional specification. Our analysis thus provides a necessary and sufficient axiomatic foundation for a de-coupling of the predictive content of the classical theory of competitive firm behavior from its a priori roots in profit maximization, while subsuming the traditional theory as a special case.

Submitted: April 26, 2009 · Accepted: July 24, 2009 · Published: July 31, 2009

Recommended Citation

Dasgupta, Indraneel (2009) "Supply Theory sans Profit Maximization," The B.E. Journal of Theoretical Economics: Vol. 9 : Iss. 1 (Contributions), Article 26.
DOI: 10.2202/1935-1704.1571
Available at: http://www.bepress.com/bejte/vol9/iss1/art26