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Scissors or Horizon: Neoclassical Debates about Returns to Scale, Costs, and Long‐Run Supply, 1926‐1942

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  • Nahid Aslanbeigui
  • Michele I. Naples

Abstract

Modern treatment of long‐run (U‐shaped) cost curves developed from reactions to Sraffa's criticisms of Marshall. He argued that internal (dis)economies were incompatible with partial‐equilibrium analysis under perfect competition. Pigou concurred and drew L‐shaped cost curves; Viner realized that this made firm size indeterminate and industry output volatile. Using Austin and Joan Robinson's analyses, Stigler justified rising costs/supply, determinacy, and stability by irrational entrepreneurs enduring coordination failure and by factor price changes. We conclude that consistency requires constant costs but firm employment, output, and factor incomes remain theoretically indeterminate. It becomes likely that large firms will undermine perfect competition.

Suggested Citation

  • Nahid Aslanbeigui & Michele I. Naples, 1997. "Scissors or Horizon: Neoclassical Debates about Returns to Scale, Costs, and Long‐Run Supply, 1926‐1942," Southern Economic Journal, John Wiley & Sons, vol. 64(2), pages 517-530, October.
    • Handle: RePEc:wly:soecon:v:64:y:1997:i:2:p:517-530
    DOI: 10.1002/j.2325-8012.1997.tb00070.x
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    References listed on IDEAS

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    7. Allyn A. Young, 1913. "Pigou's Wealth and Welfare," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 27(4), pages 672-686.
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