Archive for October 20th, 2010
Cost(e)s
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)
