Abstract
In a market economy the rate of return on capital plays a decisive role for resource allocation. High profits in an industry stimulate expansion of production in existing firms and entry of new firms. The product price will hence tend to fall, and in the long run there is a tendency for rates of profit to become equalized across industries. The rate of profit also has an important impact on productivity growth. On the other hand, high profitability may lead to the growth of slack, which would imply that the rate of productivity growth is a decreasing function of profit rate. This dissertation is devoted to studying a dynamic model of a market adjustment process, where the rate of profit affects both production and productivity. Central questions asked are: What determines the rate of profit in an industry? What determines productivity development? These questions are answered by pointing to factors like the degree of competition and the rate of growth of demand. The analysis is mainly theoretical. The behavioural asumptions are subjected to empirical testing in a final chapter.