<p>I would say, it is more Proposition $5.\text{F}.1$ on page 150, <em>in combination</em> with $5.\text{E}.1$ that leads to, as the authors write discussing the two,</p>

<blockquote>
  <p><em>"...if a collection of firms each independently maximizes profits with respect to the same fixed price vector $p &gt;&gt;0$, then the aggregate
  production is socially efficient. That is, there is no other production plan for the economy as a whole that could produce more output using no additional inputs."</em></p>
</blockquote>

<p>Note that no assumption of identical suppliers is made here, or any other restrictive assumption about technology or the production set. The crucial assumption is the "price-taking" behavior assumed for all firms. Or, "no-market-power". Or, <strong>"all firms are equal":</strong> <strong>doesn't Perfect Competition sound <em>a lot</em> like the market version of Communism (not Socialism)?</strong></p>

<p>P.S.: Externalities could also create issues here, of course.</p>

CC BY-SA 3.0
2015-04-16T18:29:55.290Z
2015-04-16T18:29:55.290Z
Alecos Papadopoulos
<p>How to resolve the following seeming contradiction? Mas-Colell, Whinston, Green p. 148 Prop. 5.E.1 says that the efficient aggregate (coordinated) production is just the sum of individually optimal productions. But Adam Smith argued that <a href="http://en.wikipedia.org/wiki/Division_of_labour" rel="nofollow">division of labour</a> allows more efficient production than the sum of individual productions.</p>

<p>Of course Adam Smith's argument is informal, so it is not clear what assumptions differ from Mas-Colell. It could be that Smith envisioned production units with market power, externalities or some other inefficiency and the inefficiency somehow disappears with aggregation. </p>

CC BY-SA 3.0
2015-04-15T07:28:10.650Z
It seems to me Xiaokai Yang's inframarginal analysis(with) is related to what's on your mind. Maybe I got it wrong and not sure whether it's worth mentioning, because of the controversy on his approach. https://ideas.repec.org/e/pya130.html
Metta World Peace
<microeconomics>
Aggregate efficient production and division of labour
Sander Heinsalu
# Aggregate efficient production and division of labour

(Asked by: username_0 on 2015-04-15)

How to resolve the following seeming contradiction? Mas-Colell, Whinston, Green p. 148 Prop. 5.E.1 says that the efficient aggregate (coordinated) production is just the sum of individually optimal productions. But Adam Smith argued that [division of labour](http://en.wikipedia.org/wiki/Division_of_labour) allows more efficient production than the sum of individual productions.

Of course Adam Smith's argument is informal, so it is not clear what assumptions differ from Mas-Colell. It could be that Smith envisioned production units with market power, externalities or some other inefficiency and the inefficiency somehow disappears with aggregation.

**Tags:** microeconomics

> **Comments:**
> **username_1**: It seems to me Xiaokai Yang's inframarginal analysis(with) is related to what's on your mind. Maybe I got it wrong and not sure whether it's worth mentioning, because of the controversy on his approach. https://ideas.repec.org/e/pya130.html  

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## 1 answers

### Answer by username_2 on 2015-04-16. Score: 1

I would say, it is more Proposition $5.\text{F}.1$ on page 150, *in combination* with $5.\text{E}.1$ that leads to, as the authors write discussing the two,

> *"...if a collection of firms each independently maximizes profits with respect to the same fixed price vector $p >>0$, then the aggregate
> production is socially efficient. That is, there is no other production plan for the economy as a whole that could produce more output using no additional inputs."*

Note that no assumption of identical suppliers is made here, or any other restrictive assumption about technology or the production set. The crucial assumption is the "price-taking" behavior assumed for all firms. Or, "no-market-power". Or, **"all firms are equal":** **doesn't Perfect Competition sound *a lot* like the market version of Communism (not Socialism)?**

P.S.: Externalities could also create issues here, of course.


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