Discussion Questions on the Theory of the Firm and Production
1. How can diminishing marginal returns be consistent with constant returns to scale?
2. Why does there appear to be an inconsistency between the theory of the firm and consumer choice theory (pp. 12-13)? What, in your view, should be done about it?
3. How is it possible both for price to determine how much people supply and demand and for how much people supply and demand to determine price? Since both consumers and firms in competitive markets are "price takers," how is it possible for their actions to determine prices?
4. What is the difference between what I call "equilibrium theory" and what I call "general equilibrium theory"? Is it true, as I argue, that the former is the fundamental theory of mainstream economics rather than the latter?
5. What should our overall appraisal of equilibrium theory be?