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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Miller, R.A. Firms' Cost Functions: A Reconstruction. Review of Industrial Organization 18, 183–200 (2001). https://doi.org/10.1023/A:1007853922900
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DOI: https://doi.org/10.1023/A:1007853922900