Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246826 
Year of Publication: 
2021
Series/Report no.: 
FMM Working Paper No. 61
Publisher: 
Hans-Böckler-Stiftung, Macroeconomic Policy Institute (IMK), Forum for Macroeconomics and Macroeconomic Policies (FMM), Düsseldorf
Abstract: 
This paper presents a macroeconomics-friendly Post Keynesian model of the firm describing both an inventory theoretic approach and an entry deterrence approach to choice of excess capacity. The model explains why firms may rationally choose to have excess capacity. It also shows the two approaches are complementary and reinforcing of each other. Analytically, the paper makes three principal contributions. First, it provides a simple framework for understanding the microeconomics of capacity utilization choice. Second, it reframes the Post Keynesian discussion of capacity utilization by making excess capacity choice the key to understanding normal capacity utilization. Third, it implicitly challenges Neo-Kaleckian wage-led growth theory as the model shows choice of the optimal excess capacity rate is independent of the level of demand.
Subjects: 
Capacity utilization
excess capacity
surrogate inventory
entry deterrence
wage-led growth
JEL: 
D21
D24
E12
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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