Re: marginalism continued

["John Legge" <jlegge@xxxxxxxxxx>]

Mark-up is often from labour + material costs, seldom average costs
(although fixed costs may be allocated to the variable ones, giving an
appearance of average cost mark-up).

On the common business assumption that output is limited by demand and that
variable costs are constant, MC=VC and the MR=MC mark-up occurs where
e=[price]/[price - variable costs], i.e. the reciprocal of the gross margin
expressed as a fraction. In my experience, and according to such research as
I have been able to find, mark-ups tend to be just a little below the MR=MC
level on this measure.

I have never heard of P=VC pricing, and as Steve Keen has demonstrated, even
if a finite number of firms subject to increasing marginal costs competed in
an undifferentiated market the price would move towards MR=MC.

The textbook explanation of P=MC in a competitive market is so transparently
false that students with high school maths find Economics 101 about as
rational as witchcraft.

If one starts from a complex/evolutionary view, of course, the tendency of
prices to converge on average cost, against a pattern of steadily falling
real variable costs; rising elasticity as consumers become familiar with
established products; and the insertion of new and improved products as the
result of innovations re-introducing true profit is quite comprehensible.

JML

-----Original Message-----
From: pkt-owner@xxxxxxxxxxxxxxxx [mailto:pkt-owner@xxxxxxxxxxxxxxxx] On
Behalf Of Barkley Rosser
<snip>
     BTW, even in the imperfect competition case,
supply conditions still matter.  As noted by someone,
the profit max condition is still MR = MC.  The latter
reflects supply conditions.  A more serious problem
in any market form is the behavioral bounded rationality
problem, decisionmakers may simply not know their
own marginal costs, and a lot of evidence suggests
that they don't.  That is why reasonable and practical
PK micro a la Fred Lee emphasizes the Kaleckian
point that most real world pricing is of the markup
from average cost variety in markets where individual
firms have any control over pricing.
Barkley Rosser
<pins>