ECONOMIES OF SCALE AND SELF-FINANCING RULES WITH NONCOMPETITIVE FACTOR MARKETS
When a firm or public authority prices output as marginal cost, its profits are related to the degree of local economies of scale in its cost function. As is well known, this result extends to the case where some congestion-prone inputs are supplied by users. The author shows that contrary to common belief, the result holds even when scale economies are affected by a rising factor supply curve. In that case, constant returns to scale in production produces diseconomies of scale in the cost function, making marginal-cost pricing profitable. Examples are provided for a monopsonist both with and without price discrimination. In the latter case, second best pricing is also considered. Profits then are not governed in the usual way either by returns to scale in production or by scale economies in the cost function, but some useful bounds are provided.
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Availability:
- Find a library where document is available. Order URL: http://worldcat.org/issn/01935860
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Corporate Authors:
University of California, Irvine
Institute of Transportation Studies
4000 Anteater Instruction and Research Building
Irvine, CA United States 92697 -
Authors:
- Small, K A
- Publication Date: 1997-3
Language
- English
Media Info
- Features: Appendices; References;
- Pagination: 37 p.
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Serial:
- Publication of: California University, Irvine
- Publisher: University of California, Irvine
- ISSN: 0193-5860
Subject/Index Terms
- TRT Terms: Costs; Economies of scale; Factor analysis; Markets; Pricing; Profits
- Uncontrolled Terms: Self-financing
- Old TRIS Terms: Noncompetitive
- Subject Areas: Economics; Finance; Highways; Society; I10: Economics and Administration;
Filing Info
- Accession Number: 00742322
- Record Type: Publication
- Report/Paper Numbers: UCI-ITS-WP-97-4
- Files: TRIS
- Created Date: Nov 7 1997 12:00AM