PROBLEM SET FOR THE FINAL EXAM
(S21)
I. Explanation & Analysis
1. In heterodox economics, production is a sequential and social process which is
entangled with the class/social relations and, thereby, individual enterprise production
can only be analyzed in the context of the circular and interdependent system of
production (as illustrated by the input-output table of the economy). If we follow this
view of production, is it possible for the business enterprise to ‘maximize’ its profits (as
in the neoclassical theory)? If yes, explain how profits can be ‘maximized’ in the real
world. If no, what do business enterprises do in order for them to achieve their goals?
[ch. 5]
No. It is not possible for business to maximize profits.
Under sequential production process business enterprises focus on going concern decisions.
Under this structure of production; production is circular process, there is fixed proportions of
inputs, there are many heterogeneous inputs and production of goods is directed by capitalist’
expected sales of final goods and services. With this time-oriented production structure of a
going concern, we are able to delineate sequential productive activities along with the
structure of costs of production.
The implication of this kind of production process is that price decisions are separated from
quantity decisions. There is thus no structural relationship between price and quantity, no law
of demand and supply, and no profit-maximizing firm. Administered prices rely mainly upon
production-managerial techniques, administrative conventions or rules, and organizational
structures of a going concern. The amount of quantity produced is set at the budgeted level
and remains fixed for multiple production periods.
The production schema delineates that production is a sequential process taking place at the
plant level, given technical conditions in terms of the use of differentiated inputs and fixed
investment goods, organizational structures, and working rules adopted by the going
enterprise. All types of differentiated inputs are socially created, technically connected to
each other, and jointly utilized in the process of production. Each plant segment, plant, and
going enterprise is distinctive. This particular property implies that linear aggregation of
inputs, outputs, and production at different levels into a single homogeneous variable is
avoided. To increase (or decrease) quantity produced, unused plant segments are opened up
(or closed down). The quantity adjustment occurs while the administered price remains
unchanged. This means that the enterprise activities do not generate the upward sloping
supply curve, and that profit maximization or cost minimization is not possible. In a nutshell,
, PROBLEM SET FOR THE FINAL EXAM
(S21)
it is not possible for business enterprises to maximize profits from production in heterodox
perspective.
2. Alfred Eichner (1976) argues that: the most important source of variation in the
production process is not the variation in the ratios at which inputs are combined but
rather the variation in the degree to which the several inputs together are utilized
within a given time period. (Eichner 1976, 31) How is the Eichner’s view of production
different from the standard neoclassical theory of production which presumes a
variable proportion of inputs? Your answer must include the reason(s) why it is hardly
possible to substitute one input for another in the real world.
With Neoclassical production is affected by three variables labor, capital and technology. In
this kind of economy quantity produced is determined by prices which is as result of demand
and supply. Meaning market forces determines behavior of business. When there is high
demand for products and the firms are not able to meet such demand, they will act by
producing more simply by altering proportions of inputs. On the flip when the demand is low,
they will cut their production by reducing amount of input. The key variable in this economy
is technological change to adjust to market forces. Therefore, under neoclassical variation in
production is due to ratios at which inputs are combined.
This is viewed differently by Eichner who argues variation in production is brought by degree
to which the several inputs together are utilized within a given time period. Under this
economic theory quantity of goods and services produces is not determined by market forces.
A change in quantity in response to changes in market sales is done by opening up unused
plant segments or closing down plant segments in use. While the quantity adjustment occurs
over production periods, a change in the production capacity through investment takes more
than one accounting period, therefore the business enterprises are going concern. Moreover,
even though expected sales change, the going concern tends to stay with the current level of
output, since a change in quantity produced requires the changes in the use of inputs or the
changes in productive capacity, both of which require the adjustment of the entire production
process.
In real world it is not possible to substitute input with another for they are all required in
production process. What can be done is utilizing various mixes of two techniques. For
example, perhaps machines can be operated at two possible speeds, fast and slow. If they run
, PROBLEM SET FOR THE FINAL EXAM
(S21)
fast, then a relatively small amount of labour is used together with a relatively large amount
of raw material (since some is wasted). If they run slowly, then a relatively large amount of
labour is used together with a relatively small amount of raw material.
(S21)
I. Explanation & Analysis
1. In heterodox economics, production is a sequential and social process which is
entangled with the class/social relations and, thereby, individual enterprise production
can only be analyzed in the context of the circular and interdependent system of
production (as illustrated by the input-output table of the economy). If we follow this
view of production, is it possible for the business enterprise to ‘maximize’ its profits (as
in the neoclassical theory)? If yes, explain how profits can be ‘maximized’ in the real
world. If no, what do business enterprises do in order for them to achieve their goals?
[ch. 5]
No. It is not possible for business to maximize profits.
Under sequential production process business enterprises focus on going concern decisions.
Under this structure of production; production is circular process, there is fixed proportions of
inputs, there are many heterogeneous inputs and production of goods is directed by capitalist’
expected sales of final goods and services. With this time-oriented production structure of a
going concern, we are able to delineate sequential productive activities along with the
structure of costs of production.
The implication of this kind of production process is that price decisions are separated from
quantity decisions. There is thus no structural relationship between price and quantity, no law
of demand and supply, and no profit-maximizing firm. Administered prices rely mainly upon
production-managerial techniques, administrative conventions or rules, and organizational
structures of a going concern. The amount of quantity produced is set at the budgeted level
and remains fixed for multiple production periods.
The production schema delineates that production is a sequential process taking place at the
plant level, given technical conditions in terms of the use of differentiated inputs and fixed
investment goods, organizational structures, and working rules adopted by the going
enterprise. All types of differentiated inputs are socially created, technically connected to
each other, and jointly utilized in the process of production. Each plant segment, plant, and
going enterprise is distinctive. This particular property implies that linear aggregation of
inputs, outputs, and production at different levels into a single homogeneous variable is
avoided. To increase (or decrease) quantity produced, unused plant segments are opened up
(or closed down). The quantity adjustment occurs while the administered price remains
unchanged. This means that the enterprise activities do not generate the upward sloping
supply curve, and that profit maximization or cost minimization is not possible. In a nutshell,
, PROBLEM SET FOR THE FINAL EXAM
(S21)
it is not possible for business enterprises to maximize profits from production in heterodox
perspective.
2. Alfred Eichner (1976) argues that: the most important source of variation in the
production process is not the variation in the ratios at which inputs are combined but
rather the variation in the degree to which the several inputs together are utilized
within a given time period. (Eichner 1976, 31) How is the Eichner’s view of production
different from the standard neoclassical theory of production which presumes a
variable proportion of inputs? Your answer must include the reason(s) why it is hardly
possible to substitute one input for another in the real world.
With Neoclassical production is affected by three variables labor, capital and technology. In
this kind of economy quantity produced is determined by prices which is as result of demand
and supply. Meaning market forces determines behavior of business. When there is high
demand for products and the firms are not able to meet such demand, they will act by
producing more simply by altering proportions of inputs. On the flip when the demand is low,
they will cut their production by reducing amount of input. The key variable in this economy
is technological change to adjust to market forces. Therefore, under neoclassical variation in
production is due to ratios at which inputs are combined.
This is viewed differently by Eichner who argues variation in production is brought by degree
to which the several inputs together are utilized within a given time period. Under this
economic theory quantity of goods and services produces is not determined by market forces.
A change in quantity in response to changes in market sales is done by opening up unused
plant segments or closing down plant segments in use. While the quantity adjustment occurs
over production periods, a change in the production capacity through investment takes more
than one accounting period, therefore the business enterprises are going concern. Moreover,
even though expected sales change, the going concern tends to stay with the current level of
output, since a change in quantity produced requires the changes in the use of inputs or the
changes in productive capacity, both of which require the adjustment of the entire production
process.
In real world it is not possible to substitute input with another for they are all required in
production process. What can be done is utilizing various mixes of two techniques. For
example, perhaps machines can be operated at two possible speeds, fast and slow. If they run
, PROBLEM SET FOR THE FINAL EXAM
(S21)
fast, then a relatively small amount of labour is used together with a relatively large amount
of raw material (since some is wasted). If they run slowly, then a relatively large amount of
labour is used together with a relatively small amount of raw material.
