The Origins of the U-Shaped Average Cost Curve: Understanding the Complexities of the Modern Theory of the Firm

The article discusses the origins of the U-shaped average cost curve, which is one of the most widely used tools in microeconomic analysis. Its widespread use leads many to consider it as a basic tool, obscuring the fact that the graph of the U-shaped average cost curve is part of a complex theoretical construct that didn't emerge until the 20th century. The curve's complexity stems from a careful balance between increasing returns and perfect competition, short-run and long-run considerations of production, and logical consistency, a balance that was first stated by the successors of Alfred Marshall, who are detailed in the article.