Properties of a firm’s factor demands, optimal production correspondence, and an economy‘s aggregated supply/demand

Abstract

Many theoretically beautiful conclusions of the producer theory were derived on the common assumption that every firm attempts to maximize its profit and minimize its cost, while all firms employ the same methodology in their optimization efforts. By losing up these two behavioral assumptions and by introducing the concept of value-belief systems for individual firms, this paper reestablishes a few well-known results of the producer theory for the general case of not specifying what criteria of priority a firm holds. At the same time, this paper shows by using counterexamples, among others, that generally, (i) except for a specific scenario, the optimal production correspondence does not satisfy the homogeneity of degree zero, and (ii) even when individuals act in their own best self-interests, they may not collectively produce unintended greater social benefits and public goods. In the end, several topics of expected significance are suggested for future research.