Construction of an Aggregated Economy - Aggregated TFP and Price Level -

We aggregate an economy consisting of two commodities, two factors, and two producers into an economy with one commodity, two factors and one producer. Our aggregation method has three characteristic features. One is that an aggregated TFP and price level are defined respectively by individual TFPs and prices of commodities. Another is that our aggregation method includes an aggregation of production functions that has been considered intractable. We resolve that difficulty by specifically devoting attention to equilibrium. The other is that the total values of an original and an aggregated economy are identical.