Producer's optimum under unremitting increase of returns to scale

This paper is an attempt to grasp and model the problem of optimal strategy of a firm under conditions of unremitting increase of returns to scale and multiple threats of firm's downfall. The firm in our model has to pay high fixed costs to enter the market and its marginal costs are insignificant (zero). The firm is threatened by two threats at one time: by too low profit and by an entrance of a new firm to the market. We have shown that this problem has (either for uniform or for normal distribution of probability of survival) only one solution. This enables us to construct the supply function. In case of absence of the new entry threat, this supply function is in fact the supply function in the standard neoclassical microeconomics.

Keywords: generalized microeconomic criterion of producer, mathematical models of economic behaviour, unremitting increase of returns to scale, danger of firm's exit