Show description

Historical and dynamic time We must always consider the transition from one position to another, and recognize that the conditions under which this transition occurs may affect the final position of equilibrium. Auxiliary features The possible negative impact of flexible prices Because of income effects, price flexibility may worsen the situation that it was meant to correct. The monetary production economy Models must recognize that contracts are denominated in money; that firms have debts and households have assets that may impose considerable financial constraints.

This is the principle of separability, which is accepted even by some neoclassical authors. From here, if we want to discuss the principle of subordination, we need to introduce orderings of a lexicographic nature, which suggest that we order and prioritize groups of characteristics. Lancaster (1971, p. 154) follows this approach, which he calls ‘dominance’, but he does not put much faith in it, whereas Ironmonger (1972), who proposed this approach concurrently, is much in favour of it. Growth, dependence and heredity.

Moreover, rapid growth often implies diversifying towards less familiar lines of products, engaging in important marketing expenses, or reducing profit margins. All of these are bound to reduce the maximum attainable profit rate, thus explaining the downward-sloping part of the expansion frontier. The finance frontier The finance frontier explains the internal and external financing opportunities of the firm. Investment can be financed internally (self-financed) or externally, through debt, either by borrowing from banks or turning to financial markets by issuing shares.