Table of Contents

Famous Figures and Diagrams in Economics

Famous Figures and Diagrams in Economics

Edited by Mark Blaug and Peter Lloyd

This is a unique account of the role played by 58 figures and diagrams commonly used in economic theory. These cover a large part of mainstream economic analysis, both microeconomics and macroeconomics and also general equilibrium theory.

Chapter 8: Long-run and Short-run Cost Curves

Fiona Maclachlan

Subjects: economics and finance, economic psychology, history of economic thought

Extract

Fiona Maclachlan Cost curves form a staple part of the curriculum of undergraduate microeconomics. Their presentation across textbooks is fairly uniform and has not varied much over the years since Marshallian partial equilibrium analysis was first codified in a set of diagrams. The uniformity and stability of the presentation of the curves belies their controversial beginnings in the 1920s and 1930s, as economists struggled to contain Marshall’s realistic descriptive insights and biological analogies into a logically coherent static equilibrium model. In the battle that played out between descriptive realism and neat formalisms, the latter won out for center stage in textbook studies of cost. Cost curves are drawn with the quantity of a specific product along the horizontal axis and money cost on the vertical. For an analysis of perfect competition, the assumption is that each firm faces identical input prices and choices of technology. Under this assumption, the curves can be interpreted to correspond either to the industry as a whole, or to a representative firm. They can represent the total cost of the quantity, the average (per unit) cost, or the marginal cost. For the short run, total and average costs can be broken down into the portion reflecting the amount spent on factors of production whose quantities can be varied, and the portion reflecting the sunk costs of the fixed factors of production. Further, one can consider long-run cost curves drawn under the assumption that the quantities of all factors can be varied. Drawn together in one...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information