| Summary: | In this paper the comparative-static behavior of the multi-product firm is examined and shown to be sharply different in certain circumstances from that of the single-product firm in received theory. The theory of the multi-product firm has been largely neglected, probably because most formulations of its problem have led to the conclusion that, aside from the problem of interdependent demand and joint production, it is a straightforward extension of the theory of the single-product firm (e.g., [3, 319-32]). Ralph W. Pfouts [7] has shown, though, that if the multi-product firm is able to switch some of its fixed factors from one product line to another, then when one or more of the fixed factors is fully employed, the firm can no longer be viewed as a collection of single-product firms. <BR> Moreover, while the effect on the cost-minimizing demand for the 8th factor of a change in the price of the factor equals in aggregate the effect on the cost-minimizing demand for the 8th factor of a change in the price of the ith factor, such is not necessarily the case for the factor demand in a single product line. That is, the cross substitution effects may not be equal in an individual product line. Analogous remarks hold for the factor demand functions in the profit-maximizing problem.[2] <BR> This observation is an accurate generalization only to the extent that the multi-product firm faces no short-run problem of rationing factors fixed in total supply but variable in their allocation among the product lines. In cases of such rationing, the theory of the single-product firm is no longer a useful guide.
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