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  4. Fall 1994
  5. The Allocation of Resources in the Presence of Indivisibilities

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

The Allocation of Resources in the Presence of Indivisibilities

  • Herbert Scarf
Journal of Economic Perspectives
vol. 8, no. 4, Fall 1994
(pp. 111–128)
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Abstract

A major theme of economic theory is that optimality, at the level of the firm or the economy as a whole, can be reached by profit maximization using competitive prices. The conclusion requires the assumption that the production possibility set be convex and is not valid if production displays economies of scale based on significant indivisibilities. The paper provides a specific quantity test for detecting optimality in the presence of indivisibilities and suggests that it may be useful to view the large firm as an algorithm for solving programming problems in which some of the variables assume integral values.

Citation

Scarf, Herbert. 1994. "The Allocation of Resources in the Presence of Indivisibilities." Journal of Economic Perspectives, 8 (4): 111–128. DOI: 10.1257/jep.8.4.111

JEL Classification

  • D21 Firm Behavior
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