Marshall Flashcards
according to stigler , what were the 4 maor areas in which marshall had a significant effect on the evolution of economic thought?
1) marshall made time itself a major factor in the theory of value
2) the doctrine of external and internal economies was a major marshallian contribution
3)the prominence he gave to the theory of the firm
4) marshalls introduction of and emphasis upon consumer surplus
what was marshallian theory of time?
marshall felt he needed time devisions in order to complete his analysis of the equilibrium conditions of demand and supply he was attempting. the stress was on the supply side . he seemed to feel that demand curves remained stable with the passing of time. on the supply side, marshall thought it was necessary to divide time into periods depending on the speed at which factors of production could be made available to alter supply or output. he used three time definitions: market period, short period and long period. marshall was aware that there were difficulties in precise identification of these periods. he knew that long and short periods may shade into one another but said that these events are neither frequent nor important
what were the time definitions marshall used?
i) the market period: there is simply a fixed supply of a commodity
ii) the short period: when some productive factors are variable, some fixed
iii)the long period: all inputs or productive factors are variable
what are internal economies of scale?
internal economies of scale are generated by the increase in the size of the firm, they are benefits of large scale production. this large scale production allows the introduction of new methods and new machines
why might internal economies of scale come about?
these can be new either: becasuse although previously known in a technological sense, they were not used because the scale of production was too small or new in a technological sense because the increase in the scale of the production generates the subdivision of operations and stimulates the invention of new machines
what are external economies of scale?
external economies of scale arise from the concentration of specialised inputs in particular localities. such economies can arise independently of the size of individuals firms: they arise from the development of the economy as a whole.
how do external economies of scale arise?
they result of increased specialisation generated by the geographical concentration of related industries or the result of the introduction of new technologies and new machines use requires the development of the economy as a whole. (although marshall only deals with type 1)
what was marshalls theory of the firm?
marshall appears to think a detailed anaylsis of the individual unit of production is required. in some approaches, analysis proceeds at some level of aggregation, that is make assumptions about the economy as a whole- an aggregate production function for instance with the economy producing only one good.
what was the issue of walrus theory of the firm?
the general equillibrium approach has an input output equation for each industry but individual firms within the industry are not isolated and the industry appears as one firms. the industry is too aggregated and does not provide a full analysis of the individual firms . however there might be an issue defining the individual firms outside the industry. if the goods are homogenous then industry curve is fine however when there is product differentiation then one firms output ceases to be perfect substitutes for another so firms may produce same product but there is output heterogeneity.
what was the critism of blaug for theory of the firm in the short run for marshall?
between the instantaneous market period and the long period lies an indefinite morass of the short run. this is a period too short to permit changes in capacity such as the size of the plant or the amount of equipment of firms but long enough to allow for changes in the degree of utilisation of capacity. it is in the short run that the problem of time is most troublesome as it is unclear what the fixed period of time is.
what was marshalls theory of the firm in the short run?
if in the short run some of these inputs are fixed and cannot be changed then the output can only be increased by changing the other variable inputs most likely labour
why do the average fixed cost fall with an increase in quantity?
as the fixed costs are independent of quantity, if you increase the quantity then the fixed cost per output is smaller ie fixed cost remains same
what is the average total cost to marshall?
the average total cost is the sum of the average direct costs and the average fixed costs
what is the theory of the firm in the long run according to marshall?
the long run, the firms have all their inputs being variable so therefore they can operate on any ratio of capital and labour. therefore the long average costs curve will be an envelope of all the minimum of the short run average cost curves. the curve will be U shaped.
what are constant returns to scale?
they indicate that the long run cost curve of the firm is horizontal
