Re: [OPE] marginal costs

From: Alejandro Agafonow <>
Date: Tue Dec 09 2008 - 03:21:11 EST

The myth that Anders E. rightly points out is the consequence of an old ‘liberal progressive’ desideratum in the marginalist thought.   This desideratum, which has been distorted by contemporary neoclassical economists, shows the desirability of expanding as far as possible the scale of production, which is attainable only when marginal costs equalize prices (I have to qualify this statement).   In this scenario we would enjoy the cheapest goods and services, because we would overcome the main course of capitalism, i.e. the emergence of profit, because it is a failure to expand output.   Pigouvian policy makers have proven to be incapable of attaining this desideratum in the framework of capitalist economies. The only way out is the mandatory price mechanism under Market Socialism.   Regards,A. Agafonow ________________________________ De: Anders Ekeland <> Para: Outline on Political Economy mailing list <> Enviado: lunes, 8 de diciembre, 2008 20:26:13 Asunto: Re: [OPE] marginal costs I have argued several times over that last 2-3 years that this is a complete myth, due to increasing returns to scale, which is the dominant scale form under capitalism, it is the type of production function a profit maximizer would like to have - and consequently in the real world often achieves - since there is almost always some fixed costs. I think you will find this point in: Helpman, Elhannan and Krugman Paul R. (1993), ”Market Structure and Foreign Trade”, MIT Press. Where the recent Swedish Bank Memorial Prize Winners wrote: “The easiest form of scale economies to give a real world justification is increasing returns to scale”.  (p. 32) I wrote a paper to the 2006 AHE conference related to this: "The text-book myth of the monopoly case" arguing that monopoly (large market shares) gives lower prices and higher volume - just the opposite of the "Wonderland-result" of ordinary text-books, i.e. high price low volume i. As soon as you see competition as a dynamic phenomenon this follows directly. Se also Baumol: "The free-market innovation machine" (2002) for the same point, the oligopolistic competition is the most welfare enhancing market form, But all market forms are transient, there are periods with many firms - competition leading to fewer firms when there is less radical technological change - and the "incumbents" being challenged by new technologies (main-frame monopoly by mini-computers, minis by PC's etc. etc. - the Herfindahl index changes over time!) Most text-books, f.ex Stiglitz&Walsh are schizo both preaching the dogma and having a series of concrete examples that increasing returns are important, leads to better price performance etc. Regards Anders At 18:38 08.12.2008, you wrote: > Below you can find a citation which claims that this is not the case in capitalist markets, and I agree:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> > > > > From the view point of the ‘perfect’ competition fallacy, competition would be ‘perfect’ only if the entrepreneur were to expand the manufacture of each pattern up to the point in which the increment cost of production equals the marginal price that would be obtained on the market. Only then should he embark upon the production of a second pattern. […] In reality entrepreneur find it moore profitable to stop producing a certain pattern before this point is reached and embarks upon the production of a second, a third, and many other patterns. He acts in this way because he wants to maximize his profits. (pp. 15) “Monopoly Pricesâ€�, The Quarterly Journal of Austrian Economics, vol. 1, nº 2, 1998. > > > > > > But on the literature? You can find in every mainstream Microeconomics book just the opposite statement. > > > > I argue in my dissertation that this equalization is desirable, but only possible in a Market Socialism. > > > > Regards, > A. Agafonow > > > De: Paul Cockshott <> > Para: Outline on Political Economy mailing list <> > Enviado: lunes, 8 de diciembre, 2008 17:10:23 > Asunto: [OPE] marginal costs > > I seem to recall that a couple of years back there was discussion here refuting the following neo-classical position: > > "A competitive firm equates its marginal cost to the market price of its product. The equality of marginal cost and price is a fundamental efficiency condition for the allocation of resources. When the condition holds, the purchasers of the product equate their marginal rates of substitution to the corresponding marginal rates of transformation. By contrast, under monopoly or oligopoly, the allocation of output will be inefficient because price will exceed marginal cost." > > Can anyone remember it more precisely? > _______________________________________________ > ope mailing list > <> > > > _______________________________________________ > ope mailing list > > _______________________________________________ ope mailing list

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