"The Theory of the Firm in Relation to Business Cycle Theory" [2004] ELECD 197; in Minsky, P. Hyman; Papadimitriou, B. Dimitri (eds), "Induced Investment and Business Cycles" (Edward Elgar Publishing, 2004)

Book Title: Induced Investment and Business Cycles

Editor(s): Minsky, P. Hyman; Papadimitriou, B. Dimitri

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843762164

Section: Chapter 4

Section Title: The Theory of the Firm in Relation to Business Cycle Theory

Number of pages: 17

Extract:

4. The theory of the firm in relation to
business cycle theory
If non-linear accelerator type models are to be used in business cycle
theory, it is necessary to understand the process by which a change in
income induces investment and whether or not the effect of a change in
income upon investment varies systematically over the business cycle. We
will examine the hypothesis that the effect upon investment of a change in
income depends upon the relation between investment decisions of indi-
vidual firms and (1) the structure of the product markets in which the firm
is operating and (2) the financing conditions which confront the firm. This
leads us to a study of the investment behavior of business firms.
Market structures determine two relations for a firm: (1) the relation
between the particular demand curve confronting the firm and the market
demand curve and (2) the way in which a firm behaves toward its particu-
lar demand curve. Market structure is the manner in which the market for
a product is organized. Organization is really an improper description of
the concept as no formal organization of producers or consumers need
exist. Aside from the generalization of cost curves to allow for financing
conditions, we do not need anything more than the traditional analysis of
competitive and monopolistic markets.1 Oligopoly, the region between
competition and monopoly, does cause us concern, and we will have to set
up a working model of such markets.
Financing conditions include the ...