The usual neoclassical production function forms the point of departure for the present model of the firm. I will therefore briefly review the conceptual basis of capital and of the production function in the neoclassical model of the firm.' In the static model, maximization of profits under the competitive assumption yields the usual optimality conditions: that the firm must equate marginal value product of capital to its rental value and the marginal value product of labor to the wage rate. Under decreasing returns, this yields the optimal level of capital and labor used by the firm, while under constant returns to scale in production only the capital-labor ratio can be determined, the size of the firm being indeterminate. There is little difference between the conception of capital implicit in the production function and the way land may be treated in an agricultural production function. However, it is possible to modify the analysis by a consideration of the shortand long-run and the associated fixed and variable factors and thus introduce features which distinguish capital from land. Thus, variable factors like labor are adjustable in the short run but not the fixed factors such as capital. The latter are adjustable over the long run. In the intertemporal version of the model,2 the firm maximizes the discounted stream of returns. Its capital stock is obtained through investment. This treatment gives an explicit relation between the rental value of capital and the cost of investment ([r + 3 e/c]c) as long as there is a positive level of new investment (by any firm in the economy). If the aggregate demand for this good is negative, the rental value of capital must adjust to equate supply and demand for existing capital. A paradoxical result of this model is that capital again becomes a variable factor. Also, for discontinuous changes in the prices of output or inputs, the quantity of investment is indeterminate. In this version of the model,