Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for October 20th, 2010

Cost(e)s

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Two important clarifications: 

  • In reading students dissertations, i keep being confronted with the erroneous view that a sunk cost is almost necessarily a fixed cost. This is simply untrue: when firms hire additional staff to increase their production scale, they incur training investments, which are sunk, variable costs.
  • Also, students apparently fail to understand why  marginal costs typically increase. This is because contrary to what is often said, firms face in the long term decreasing returns: diminishing productivity, costly access to input when quantities purchased increase, etc. (also, in the long run, additional fixed costs must be incurred)

(Image possibly subject to copyrights: source here)

Written by Nicolas Petit

20 October 2010 at 5:35 pm