The Theory of the Revenue Maximizing Firm

Beniamino Moro

Department. of Economics, University of Cagliari, Viale Sant’Ignazio 17, - 09123 Cagliari (Italy).

DOI: 10.4236/jssm.2008.12019                

Abstract

An endogenous growth model of the revenue maximizing firm is here presented. It is demonstrated that, in a static analysis, a revenue maximizing firm in equilibrium equates the average product of labor to the wage rate. In a dynamic analysis, the maximization rule becomes the balance between the rate of marginal substitution - between labor and capital - and the ratio of the wage rate over the discount rate. When the firm satisfies this rule, it grows endogenously at the rate of return on capital. The firm may also have multiple stationary equilibria, which are very similar to the static equilibrium. JEL classification: D21, O41.

Keywords

firm, theory of the firm, revenue maximization, endogenous growth

Conflicts of Interest

The authors declare no conflicts of interest.

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