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Fixed Costs and the Division of Labor

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  • Haiwen Zhou

    (Department of Economics, Old Dominion University)

Abstract

How market size and the level of coordination costs determine the degree of specialization is studied in an infinite horizon model with the amount of capital determined endogenously. Firms producing the same intermediate good engage in oligopolistic competition and choose the degree of specialization of their technologies to maximize profits. A more specialized technology is a technology with a lower marginal cost, but a higher fixed cost. Interestingly, the relationship between the level of coordination costs and a firm's degree of specialization is ambiguous. A firm in a country with a larger market size, more patient citizens, or a higher amount of knowledge will choose more specialized technologies and this country will have a higher wage rate and a higher capital stock. If fixed costs decrease, firms will choose more flexible manufacturing.

Suggested Citation

  • Haiwen Zhou, 2021. "Fixed Costs and the Division of Labor," Annals of Economics and Finance, Society for AEF, vol. 22(1), pages 63-81, May.
    • Handle: RePEc:cuf:journl:y:2021:v:22:i:1:zhou
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    References listed on IDEAS

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    Cited by:

    1. Lei Wen & Haiwen Zhou, 2023. "The choice of technology in economic development," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 747-763, December.
    2. Haiwen Zhou, 2023. "Impact of international trade under dual labor markets," Bulletin of Economic Research, Wiley Blackwell, vol. 75(4), pages 917-934, October.
    3. Constantine Angyridis & Haiwen Zhou, 2022. "Search, technology choice, and unemployment," International Studies of Economics, John Wiley & Sons, vol. 17(3), pages 296-310, September.
    4. Binglin Gong & Haiwen Zhou, 2023. "The choice of technology and international trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 32(7), pages 1035-1057, October.
    5. Haiwen Zhou, 2022. "The Choice of Technology and Economic Geography," International Economic Journal, Taylor & Francis Journals, vol. 36(1), pages 1-18, January.

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    More about this item

    Keywords

    The division of labor; Market size; Fixed costs; Flexible manufacturing; Coordination costs;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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