What determines aggregate returns to scale?

Research output: Contribution to journalArticle

23 Citations (Scopus)

Abstract

This paper develops a unified framework that incorporates four features important in existing models with increasing returns: fixed costs, decreasing marginal costs, product variety, and market power. When fixed costs are not allowed to vary and profits are imposed to be zero in every period, only the degree of returns to variety determines the degree of aggregate increasing returns to scale. When fixed costs respond to changes in aggregate activity or the zero-profit condition does not hold in the short run, aggregate returns depend not only on product variety but also on diminishing marginal costs or market power. The degree of market power, however, does not affect input prices, which are critical to determine the uniqueness of equilibrium.

Original languageEnglish
Pages (from-to)1577-1594
Number of pages18
JournalJournal of Economic Dynamics and Control
Volume28
Issue number8
DOIs
Publication statusPublished - 2004 Jun 1

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Keywords

  • Increasing returns
  • Indeterminacy
  • Monopolistic competition
  • Returns to variety

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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