The division of labor and the extent of the market

Abstract

A firm’s degree of specialization is modeled as the number of different goods it produces. When a firm chooses its degree of specialization, it faces a tradeoff between the fixed cost and the marginal cost of production. A firm’s degree of specialization is shown to increase with the extent of the market. Meanwhile, the real wage rate, as a measure of the extent of the market, is endogenously determined in the model and is shown to increase with the division of labor. Copyright Springer-Verlag Berlin/Heidelberg 2004Division of labor, Extent of the market, Specialization, Increasing returns to scale.,

The Choice of Technology and Equilibrium Wage Rigidity

“…Zhou (2009) addresses the impact of population growth on an economy's possibility of achieving industrialization. One difference between this paper and Zhou (2004Zhou ( , 2009) is that there is no unemployment in Zhou (2004Zhou ( , 2009 while in this model there is unemployment in equilibrium. Zhou (2013) explores the choice of technology in a twosector model of economic development in which urban unemployment exists.…”

“…1 Firms engage in Cournot competition. 2 To produce the consumption good, similar to Zhou (2004Zhou ( , 2009Zhou ( , 2013, we assume that a firm may choose from a continuum of technologies indexed by a positive number n . A higher value of n indicates a more advanced technology.…”

“…In terms of the choice of technologies, this paper is related to Zhou (2004Zhou ( , 2009Zhou ( , 2013. Zhou (2004) studies the mutual dependence between the division of labor and the extent of the market in a general equilibrium model.…”

“…Zhou (2004) studies the mutual dependence between the division of labor and the extent of the market in a general equilibrium model. Zhou (2009) addresses the impact of population growth on an economy's possibility of achieving industrialization.…”

Theory on the Functions of A Firm: A Resolution to Smith’s Dilemma

“…Similarly, Zhou (2004) specializes different types of production technologies, and assumes that more specialized technology is relatively subject to higher fixed cost and lower marginal cost, hence proving that specialization will increase with the market growth. However, they also deviate Stigler's proposition of the functions of a firm.…”