Munich Personal RePEc Archive

The division of labor and the extent of the market

Zhou, Haiwen (2019): The division of labor and the extent of the market. Published in: Economic Theory , Vol. 24, No. 1 (July 2004): pp. 195-209.

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Abstract

A firm’s degree of specialization is modeled as the number of different goods it produces. When a firm chooses its degree of specialization, it faces a tradeoff between the fixed cost and the marginal cost of production. A firm’s degree of specialization is shown to increase with the extent of the market. Meanwhile, the real wage rate, as a measure of the extent of the market, is endogenously determined in the model and is shown to increase with the division of labor.

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