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Average cost and marginal cost pricing in Marshall: Textual analysis and interpretation

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  • Luca Zamparelli

Abstract

This paper proposes a textual analysis of Marshall's theory of firm pricing behavior under competitive conditions. Average cost and marginal cost pricing theories have very distinct origins as they are rooted, respectively, in the classical and marginalistic theory of competition. I analyze to what extent and under which circumstances the two theories joined in the work of Alfred Marshall; and I argue that, even though only partial evidence can be found to support the adoption of the notion of marginal cost pricing by Marshall, he developed some concepts, such as the distinction between short and long periods and the notion of quasi-rents, which turned out to be fundamental for the joint acceptance of marginal cost and average cost pricing principles by the Marshallian school.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The European Journal of the History of Economic Thought.

Volume (Year): 16 (2009)
Issue (Month): 4 ()
Pages: 665-694

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Handle: RePEc:taf:eujhet:v:16:y:2009:i:4:p:665-694

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Keywords: Marshall; classical competition; perfect competition; marginal and average cost;

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  1. Garegnani, P, 1970. "Heterogeneous Capital, the Production Function and the Theory of Distribution," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 407-36, July.
  2. Ekelund, Robert B, Jr & Hebert, Robert F, 1999. "The Dupuit-Marshall Theory of Competitive Equilibrium," Economica, London School of Economics and Political Science, vol. 66(262), pages 225-40, May.
  3. George J. Stigler, 1957. "Perfect Competition, Historically Contemplated," Journal of Political Economy, University of Chicago Press, vol. 65, pages 1.
  4. Paul J. McNulty, 1967. "A Note on the History of Perfect Competition," Journal of Political Economy, University of Chicago Press, vol. 75, pages 395.
  5. Hart, Neil, 1996. "Marshall's Theory of Value: The Role of External Economies," Cambridge Journal of Economics, Oxford University Press, vol. 20(3), pages 353-69, May.
  6. Harris, Donald J, 1988. "On the Classical Theory of Competition," Cambridge Journal of Economics, Oxford University Press, vol. 12(1), pages 139-67, March.
  7. Garegnani, P, 1970. "Heterogeneous Capital, the Production Function and the Theory of Distribution: Reply," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 439, July.
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Cited by:
  1. Oggioni, Giorgia & Smeers, Yves, 2012. "Evaluating the application of different pricing regimes and low carbon investments in the European electricity market," Energy Economics, Elsevier, vol. 34(5), pages 1356-1369.

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