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Increasing Returns and the Inefficiency of Cost Minimization

This note demonstrates that cost minimization may result in an inefficient allocation of resource if there are multiple techniques of production and one or more techniques exhibit increasing returns to scale. This result is true even if all output are priced at marginal cost. The nature of this inefficiency is explored and an alternative procedure is examined which avoids the inefficiency associated with cost minimization.
Year of publication:
1977
Authors: Arnott, Richard ; Harris, Richard
Institutions: Economics Department, Queen's University
Series:
Type of publication: Book / Working Paper
Notes:
2 pages long
Source:
Persistent link: https://www.econbiz.de/10005787605
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