Primal Analytical Foundations of Dynamic Production Analysis

Abstract

This chapter develops dynamic production analysis within the context of the adjustment cost model of the firm, where adjustment costs are associated with changes in the level of the quasi-fixed factors, also known as internal adjustment costs. The chapter characterizes axiomatically several primal representations of the adjustment cost production technology. The axiomatic approach is a cornerstone to model production technology both in theoretical and empirical work. The existence of several representations of the adjustment cost production technology is essential in the analysis of the firm’s decisions and its adjustment path that are conditioned by the technology. Three set representations of the adjustment cost production technology are discussed and characterized axiomatically. Two functional representations of the technology are also addressed using an axiomatic approach.