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On the Treatment of Fixed and Sunk Costs in the Principles Textbooks


  • David Colander


The author argues that, although the standard principles level treatment of fixed and sunk costs has problems, it is logically consistent as long as all fixed costs are assumed to be sunk costs. As long as the instructor makes that assumption clear to students, the costs of making the changes recently suggested by X. Henry Wang and Bill Z. Yang in the Journal of Economic Education are greater than the benefits.

Suggested Citation

  • David Colander, 2004. "On the Treatment of Fixed and Sunk Costs in the Principles Textbooks," The Journal of Economic Education, Taylor & Francis Journals, vol. 35(4), pages 360-364, October.
  • Handle: RePEc:taf:jeduce:v:35:y:2004:i:4:p:360-364 DOI: 10.3200/JECE.35.4.360-364

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    References listed on IDEAS

    1. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    2. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, July.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, July.
    4. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
    5. Miles Cahill & George Kosicki, 2000. "Exploring Economic Models Using Excel," Southern Economic Journal, Southern Economic Association, vol. 66(3), pages 770-792, January.
    6. Cooley, Thomas F. & Hansen, Gary D., 1992. "Tax distortions in a neoclassical monetary economy," Journal of Economic Theory, Elsevier, vol. 58(2), pages 290-316, December.
    7. Heijdra, Ben J., 2017. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 3, number 9780198784135, June.
    8. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    9. Taylor, John B & Uhlig, Harald, 1990. "Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 1-17, January.
    10. Casey B. Mulligan & Xavier Sala-i-Martin, 1991. "A Note on the Time-Elimination Method For Solving Recursive Dynamic Economic Models," NBER Technical Working Papers 0116, National Bureau of Economic Research, Inc.
    11. Holger Strulik & Martin Brunner, 2001. "A Simple and Intuitive Method to Solve Small Rational Expectations Models," Quantitative Macroeconomics Working Papers 20106, Hamburg University, Department of Economics.
    12. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, July.
    13. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, number 9780198294979, June.
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    Cited by:

    1. Xi Chen & Bertrand M. Koebel, 2017. "Fixed Cost, Variable Cost, Markups and Returns to Scale," Annals of Economics and Statistics, GENES, issue 127, pages 61-94.
    2. Jane S. Lopus & Lynn Paringer, 2011. "The Principles of Economics Textbook: Content Coverage and Usage," Chapters,in: International Handbook on Teaching and Learning Economics, chapter 28 Edward Elgar Publishing.

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