Scissors or Horizon: Neoclassical Debates about Returns to Scale, Costs, and Long‐Run Supply, 1926‐1942

Nahid Aslanbeigui and Michele I. Naples

Southern Economic Journal, 1997, vol. 64, issue 2, 517-530

Abstract: Modern treatment of long‐run (U‐shaped) cost curves developed from reactions to Sraffa's criticisms of Marshall. He argued that internal (dis)economies were incompatible with partial‐equilibrium analysis under perfect competition. Pigou concurred and drew L‐shaped cost curves; Viner realized that this made firm size indeterminate and industry output volatile. Using Austin and Joan Robinson's analyses, Stigler justified rising costs/supply, determinacy, and stability by irrational entrepreneurs enduring coordination failure and by factor price changes. We conclude that consistency requires constant costs but firm employment, output, and factor incomes remain theoretically indeterminate. It becomes likely that large firms will undermine perfect competition.

Date: 1997
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https://doi.org/10.1002/j.2325-8012.1997.tb00070.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:64:y:1997:i:2:p:517-530

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