  We have used agent-based modeling as our numerical method to artificially
simulate a dynamic real economy where agents are rational maximizers of an
objective function of Cobb-Douglas type. The economy is characterised by
heterogeneous agents, acting out of local or imperfect information,
monopolistic competition, perfect product differentiation, allowance for
increasing returns to scale technology and trade in disequilibrium. An
algorithm for economic activity in each period is devised and a general purpose
open source agent-based model is developed which allows for counterfactual
inquiries, testing out treatments, analysing causality of various economic
processes, outcomes and studying emergent properties. 10,000 simulations, with
10 firms and 80 consumers are run with varying parameters and the results show
that from only a few initial conditions the economy reaches equilibrium while
in most of the other cases it remains in perpetual disequilibrium. It also
shows that from a few initial conditions the economy reaches a disaster where
all the consumer wealth falls to zero or only a single producer remains.
Furthermore, from some initial conditions, an ideal economy with high wage
rate, high consumer utility and no unemployment is also reached. It was also
observed that starting from an equal endowment of wealth in consumers and in
producers, inequality emerged in the economy. In majority of the cases most of
the firms(6-7) shut down because they were not profitable enough and only a few
firms remained. Our results highlight that all these varying outcomes are
possible for a decentralized market economy with rational optimizing agents.
