An Axiomatic Approach to the Allocation of a Fixed Cost Through Prices
We 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
Volume (Year): 14 (1983)
Issue (Month): 1 (Spring)
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- Samet, Dov & Tauman, Yair, 1982.
"The Determination of Marginal Cost Prices under a Set of Axioms,"
Econometric Society, vol. 50(4), pages 895-909, July.
- Dov Samet & Yair Tauman, 1981. "The Determination of Marginal-Cost Prices Under a Set of Axioms," Discussion Papers 476, Northwestern University, Center for Mathematical Studies in Economics and Management Science.