The Paradoxical Fate of the Representative Firm

Abstract

More than 100 years have passed since Alfred Marshall introduced the representative firm to economic theory in 1891. During this long period of time, many arguments have been raised giving either support or opposition to the concept. In recent years, macroeconomists have taken an increasing interest in the representative firm. Since the beginning of the modern microfoundations literature in the early 1970s, the representative firm and its big brother, the representative agent, have been made essential analytical tools for linking macroeconomics and microeconomics. Within this debate, the microfoundation of business cycle theory has played a prominent role.