Firms' Cost Functions: A Reconstruction |
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Authors: | Miller Richard A |
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Institution: | (1) Department of Economics, Wesleyan University, Middletown, Connecticut, 06459, U.S.A |
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Abstract: | Three empirical stylized facts characterize afirm's cost functions: AVC is generallyhorizontal; scale economies are often important;and capital usage (as well as labor usage)varies with the rate of output. In contrast ourstandard theory of diminishing marginalproducts, variable proportions, and U-shapedunit cost curves does not adequately reflectthese stylized facts of industrial reality. Explicit distinction between capital stocks andcapital flows allows a remodeling of a firm'scost curves to conform with these empirical facts. |
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Keywords: | Capital flows cost curves marginal productivity theory production functions |
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