The Firm's Cost Function

A Successful Reconstruction?

by Jack Hirshleifer

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An evaluation of a reconstruction of the firm's cost function proposed by Armen Alchian in P-1449, Costs and Outputs. The relevance of this reconstruction is examined for a variety of different situations. The study also shows how the reconstruction can be reconciled with the orthodox model. Professor Alchian argues that there is a characteristic and explainable difference between the way total cost changes in response to variations in the rate dimension and the way it responds to variations in the volume dimension of output.

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