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The Relation Between Price and Marginal Cost in U.S. Industry

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Author Info
Robert E. Hall
Abstract

An examination of data on labor input and the quantity of output reveals that most U.S. industries have marginal costs far below their prices. The corilusion rests on the empirical finding that cyclical variations in labor input are small compared to variations in output. In booms, firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs. The paper documents the disparity between price and marginal cost,where marginal cost is estimated from variations in cost from one year to the next. It considers a wide variety of explanations of the flndings that are consistent with competition, but none is found to be plausible.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1785.

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Date of creation: Dec 1988
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Publication status: published as Journal of Political Economy, Vol. 96, No. 5, pp. 921-947, (1988).
Handle: RePEc:nbr:nberwo:1785

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