Mrs. Robinson's Cost Curves, Mr. Ricardo's Rent, and Professor Marshall's Bounties and Taxes

Abstract

A major issue raised by Alfred Marshall is whether competitive industries are subject to increasing or decreasing returns in the long run. If variations from constant returns exist, what are the causes, and is competitive output efficient? In competitive output is not efficient, what policies can be used to achieve market efficiency? As Joan Robinson pointed out, these questions boil down to the nature of industry long-run cost curves. The purpose of this paper is to provide an analysis of these issues that is simple and yet complex enough to explore the different outcomes that can exist.

Keywords: Competitive industry costs, Ricardian rent, Bounties, Pigouvian taxes

JEL Classification: D41, B21, D62