Competitive Prices, Normal Costs and Industrial Stability
This chapter presents a simplified model of normal-cost price theory. It will be concerned with the positive theory of the firm and the competitive industry which Andrews developed first in 1949, in consequence of our empirical studies, as an alternative to the static marginalist micro-equilibrium theory of the firm.1 There is, clearly, an investment theory parallel to the price theory, and we have published an outline of such a theory.2 More recently, the same system of thinking has been applied in retail trade theory.3 But today, as I have indicated, I shall not look beyond the theory of manufacturers’ prices, seen as determined by long-run factors (or, at all events, non-short-run factors). It is a general model, and is only presented in outline here, but I hope it will show some of the interesting things which we think we can handle.
KeywordsSmall Firm Large Firm Profit Margin Cost Curve Individual Firm
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- 1.I have drawn mostly on P. W. S. Andrews, Manufacturing Business (Macmillan, 1949 ).Google Scholar
- But see also Andrews, chapter 4, ‘Industrial Analysis in Economics’, in Oxford Studies in the Price Mechanism, ed. T. Wilson and P. W. S. Andrews (Oxford: Clarendon Press, 1951).Google Scholar
- Andrews, chapter 1, ‘Competition in the Modern Economy’, in Competitive Aspects of Oil Operations, ed. G. Sell (Institute of Petroleum, 1958 ).Google Scholar
- 2.P. W. S. Andrews and Elizabeth Brunner, Capital Development in Steel, a study of the United Steel Companies Ltd. (Blackwell, 1951 ).Google Scholar