Publication: Journal of Economic Education
Volume: Volume 31, No. 2
Issue: Spring 2000
Pages: 131-144
Author(s): Paul M. Comolli (University of Kansas)
Address (Principal Author):Paul M. Comolli
Associate Professor of Economics
University of Kansas
Department of Economics
Lawrence, KS 66045
785-864-2863
fax: 785-864-5270
Internet Address (Principal Author):pcomolli@bschool.wpo.ukans.edu
Title: Pecuniary Effects, Second-Order Conditions and the LRAC Curve
Abstract: Second-order conditions in the cost-minimization problem confronting the monopsonistic employer of factor inputs are important. I demonstrate that the presence of monopsonistic pecuniary effects can lead to several problems that previous authors have ignored. I then describe an alternative approach to the presence of pecuniary effects that does not depend on the assumption that firms are monopsonistic. This is important because there appears to be little evidence to support the suggestion of the previous authors that monopsony in factor markets might be an actual cause of economies or diseconomies of scale. I simply assume that factor prices may depend on the scale of the firm's output, in accordance with the standard textbook justification of the U-shaped LRAC curve.
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