NDLI: Average-cost Pricing, Increasing Returns, and Optimal Output: Comparing Home and Market Production

Content Provider	Springer Nature Link
Author	Ng, Yew Kwang Zhang, Dingsheng
Copyright Year	2007
Abstract	We employ a model with both market production and home production to show that, ignoring administrative costs and indirect effects (such as rent-seeking), even if both the home and the market sectors have the condition of increasing returns and there are no pre-existing taxes, it is still efficient to tax the home sector to finance a subsidy on the market sector to offset the under-production of the latter due to the failure of price-taking consumers to take account of the effects of higher consumption in reducing the average costs and hence prices, through increasing returns or the publicness nature of fixed costs. Within market production, it is efficient to subsidise more the sector with a higher fixed cost, a lower elasticity of substitution between goods (higher value of diversity), and a lower degree of importance in preference, which all increase the degree of increasing returns.
Starting Page	167
Ending Page	192
Page Count	26
File Format	PDF
ISSN	09318658
Journal	Journal of Economics
Volume Number	90
Issue Number	2
e-ISSN	16177134
Language	English
Publisher	Springer-Verlag
Publisher Date	2007-01-08
Publisher Place	Vienna
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	increasing returns average-cost pricing monopolistic competition home production optimal output fixed costs Economics general Economic Theory International Economics Microeconomics R & D/Technology Policy
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics Business, Management and Accounting

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