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Date: | Fri Oct 20 12:27:26 2006 |
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Sam Bostaph writes about the long run competitive equilibrium model
being "model-building driven." I suspect that this is true for some
writers and may be the reason for Gold's research.
However, the phenomenon of increasing cost is a derivative of the
concept of diminishing marginal utility applied to a fixed set of
consumer goods. And the concept of decreasing costs up to a point is
just an obvious deduction from the fact that the human capital used by
the entrepreneur is indivisible, unique and embodied in the mind of a
single individual (I believe that Kaldor made this point in a 1930s
paper). One doesn't need a mathematical model to realize the importance
of the theorem that competition drives the price down to the lowest that
entrepreneurs regarded as attainable (but not to zero because of rising
opportunity cost -- i.e., diminishing marginal utility of other goods),
without causing the entrepreneurs to fragment into neutrons and protons.
Indeed, having to learn the mathematical model may distract the student
who thinks that economics is applied mathematics. But it seems to me
that the assumptions behind the u-shape are essential and, it would
seem, couched in the fundamental reality of scarcity and the nature of
human decision-making.
Of course, we are not talking here about the long run of Allyn Young or
Frank Knight, perhaps more appropriately called the long, long run. We
are talking about the conceptual long run, which is what the micro
textbooks try to (or ought to try to) capture.
Kaldor, Nicholas. (1934) "The Equilibrium of the Firm." Economic Journal
44: 60-76. Reprinted in Nicholas Kaldor. (1960) Essays on Value and
Distribution. Glencoe, Ill.: The Free Press.
Best wishes,
Pat Gunning
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