An Axiomatic Approach to the Allocation of a Fixed Cost Through Prices
AbstractWe study the allocation of fixed costs to the outputs of a multiproduct firm. First we allocate short-run fixed costs through A-S prices which allocate the long-run costs. Long-run cost functions do not generally contain a fixed cost component. We show what part of the A-S prices associated with the long-run cost is allocated to the fixed cost and what part is allocated to the variable cost of the short-run costs. Second, in those cases in which the fixed costs must be allocated directly, we alter the axioms characterizing A-S prices slightly to accommodate cost functions which have a fixed cost component and derive an allocation mechanism characterized by these axioms for cost functions including those with a fixed cost component
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 468.
Date of creation: Apr 1981
Date of revision:
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
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Other versions of this item:
- Leonard J. Mirman & Dov Samet & Yair Tauman, 1983. "An Axiomatic Approach to the Allocation of a Fixed Cost Through Prices," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 139-151, Spring.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dov Samet & Yair Tauman, 1981.
"The Determination of Marginal-Cost Prices Under a Set of Axioms,"
476, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Samet, Dov & Tauman, Yair, 1982. "The Determination of Marginal Cost Prices under a Set of Axioms," Econometrica, Econometric Society, vol. 50(4), pages 895-909, July.
- Hines, J.R., 1990.
"The Transfer Pricing Problem: Where The Profit Are,"
64, Princeton, Woodrow Wilson School - Discussion Paper.
- James R. Hines, Jr., 1990. "The Transfer Pricing Problem: Where the Profits Are," NBER Working Papers 3538, National Bureau of Economic Research, Inc.
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