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Fixed Cost, Variable Cost, Markups and Returns to Scale

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  • Xi Chen
  • Bertrand M. Koebel

Abstract

This paper derives the structure of a production function which is necessary and sufficient for generating a fixed cost. We extend the classical production function in order to allow each input to have a fixed and a variable part. We characterize and estimate both fixed and variable components of the cost function and study how fixed and variable costs interact and affect firms' behavior in terms of price setting and returns to scale.

Suggested Citation

  • Xi Chen & Bertrand M. Koebel, 2017. "Fixed Cost, Variable Cost, Markups and Returns to Scale," Annals of Economics and Statistics, GENES, issue 127, pages 61-94.
    • Handle: RePEc:adr:anecst:y:2017:i:127:p:61-94
    DOI: 10.15609/annaeconstat2009.127.0061
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    2. Ryosuke Shimizu & Shohei Momoda, 2021. "Does Automation Technology increase Wage?," Discussion papers ron343, Policy Research Institute, Ministry of Finance Japan.
    3. Ryosuke Shimizu & Shohei Momoda, 2020. "Does Automation Technology increase Wage?," KIER Working Papers 1039, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    identification; imperfect competition; unobserved heterogeneity;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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