THE SHORT-RUN AGGREGATE PROFIT FUNCTION AND THE CAPACITY DISTRIBUTION

The mapping between the capacity distribution of production activities and the short-run aggregate profit function is analyzed, with emphasis on the recovery of the former from the latter and the characterization of the profit function. For the case of two inputs, it is shown that the mapping is one-to-one. It is also shown that the short-run aggregate profit, and hence the output supply and input demand, functions can be approximated by polynomials in the reciprocals of normalized input prices. Properties of these functions are also presented.