Economics Dictionary of ArgumentsHome
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| Cost structure: Cost structure in economics refers to the composition of a firm’s costs, including fixed costs (unchanging with output) and variable costs (dependent on output). It influences pricing, profitability, and scalability. Understanding cost structure helps firms make strategic decisions about production, investment, and competitive positioning. See also Costs, Production, Production structure, Production theory, Firms, Profit, Markets._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Economic Theories on Cost Structure - Dictionary of Arguments
Kiesling I 45 Cost Structure/Economic theories/Kiesling: Industries, like railways, electricity, and telecommunications, have characteristics that lead to difficult economic questions and challenging analyses. In such industries, production costs are skewed heavily toward capital, or fixed costs, with variable costs being a small share of total costs. Decreasing-cost: In these high fixed-cost industries, the average production cost per unit of output declines as a firm’s output increases, at least over the quantity or amount of product that consumers want to buy (“over the relevant range of demand”). That cost structure means that the marginal cost of a unit of that company’s product is lower than its average cost over this significant range of output. Companies structured this way are called “decreasing-cost.” Kiesling I 46 Competition: If firms in a decreasing-cost industry compete in a typical market process, their rivalry would drive the price of their product down to its marginal cost, because if the market price is the same as a firm’s marginal cost it can still pay its variable costs like wages. >Marginal costs. But if the price they receive is equal to marginal cost and this is a decreasing-cost industry, the market price will be lower than average cost, which will lead to losses. If marginal cost is not the right way to price goods in a decreasing-cost industry, how should prices be determined? >Price, >Markets, >Marginal costs, >Marginal cost controversy._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
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