The Paradoxical Fate of the Representative Firm

Abstract

While modern theorising on the microfoundation of macroeconomics makes intense use of the representative firm notion, severe objections have been raised. Regarded from the history of thought this is the second time that its usefulness is called into question. The paper presents an old literature which has ended with the abandonment of the representative firm from competition theory because it neglects the innovation issue. It shows that its subsequent adoption to macroeconomics suffers from similar flaws. It follows that the representative firm is inappropriate for the analysis of modern competitive economies and should be withdrawn from macroeconomics as well.microfoundation, representative agent, aggregation, innovation, competition, Marshall, Schumpeter