PAPM 1000 Chapter 17: CHAPTER 17 THE NEOCLASSICAL SCHOOL – THE DEPARTURE FROM PURE COMPETITION

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Piero sraffa: studied under marshall, he pointed out that unit costs of production may very well fall as a firm increases its scale of production. If the firm grows more efficient as its size increases, there will be fewer firms and less competition. It therefore, has an incentive to curtail its output to keep its price, revenue, and profit high: traditio(cid:374)al theor(cid:455) holds that a fir(cid:373)"s e(cid:454)pa(cid:374)sio(cid:374) of output is li(cid:373)ited (cid:271)(cid:455) risi(cid:374)g (cid:272)osts. Raffa said that this expansion of output it limited because of monopoly pricing: the firm enjoys certain monopoly elements even in a market that appears competitive, and the demand curve it faces slopes down and to the right. If an entrepreneur can sell one pair of shoes per day at a price of 20, two pairs at. Goods can therefore be sold at average cost and still show a profit in the accounting sense.

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