An important result in the theory of the labor-managed firm is that the firm reduces output when prices go up. This issue is considered in a dynamic situation where a firm is defined as a team. If the firm wants to grow, it has to use existing resources--which are used for current production--in order to incorporate factors of production into the team. It is shown that the long-term, steady-state results remain as before, but not the short-term impact. The labor-managed firm will normally increase production when prices go up, while the profit-maximizing firm will reduce production. Copyright 1988 by The editors of the Scandinavian Journal of Economics.
