Premium
A note on the role of the average cost curve in the neoclassical theory of the firm
Author(s) -
Ashton R. K.
Publication year - 1989
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090100109
Subject(s) - disequilibrium , economics , certainty , capital (architecture) , product (mathematics) , econometrics , microeconomics , mathematical economics , mathematics , medicine , history , geometry , archaeology , ophthalmology
A number of influential authors have argued that the long‐run average cost curve has only a limited role in the theory of the firm. This note examines this claim in more detail. It argues that the curve has an important role in determining long‐run equilibrium as it provides an important ‘signal’ to agents in the capital and product market about the extent to which an industry is in disequilibrium. The effect of removing the certainty assumption is then examined and it is argued that the average cost curve is an important input in the assessment of operating risk.