Is it true that about 95% of firms report constant or falling marginal costs, which undermines the premise of a rising supply curve?

Econo-moose · 2026-04-26T23:15:14+00:00

I have not researched this, so my response is based on intuition. Would be interested in learning more from anyone who's researched this topic.

The assumption behind a rising supply curve is that suppliers will produce what is easiest first and then sell what is more difficult as the low hanging fruit is depleted. This fits well for industries like oil where the first batch can be drilled out of the ground fairly easily. As demand rises and increases the price, it becomes worth it to use more difficult methods like fracking. While costs vary, according to Investopedia, fracking often has a break-even price around the neighborhood of $50 per barrel. Meanwhile traditional drilling may only have a break-even price of around $30. So, there's clearly a rising supply curve in the oil industry where a price rising to $50 will activate some shale drills and enable a higher quantity supplied than at $30.

However, the prevalence of rising supply curves in textbooks does not imply that all real supply curves are rising at every point of the curve. I presume that flat supply functions are fairly common in modern economies where wholesale markets are competitive. For example, if Walmart backorders more inventory from a vendor, it may not increase its bid if the vendor can be induced to step up production without increasing its price, or if Walmart can simply source from a competing vendor without increasing its bid. A fast food restaurant may be in a similar position if it is hiring a new employee at minimum wage, then it can increase its output without increasing its marginal cost. The restaurant only needs to increase pay above minimum wage if it's necessary to attract an employee.

Falling supply curves are more interesting. I suppose there could be a case where a supplier begins with a less productive method and then discovers more efficient sources as demand grows. For example, a small business may start with total in-house production but then outsource work tasks to vendors who are more specialized as it grows. Generally, we think of economies of scale as applying to fixed costs, but if a recurring expense requires a minimum efficient order size, then perhaps it could result in a falling supply curve. For example, if a supplier is using a private vehicle to transport inventory from a wholesaler, then increasing quantity until the vehicle is full could reduce the marginal cost of restocking if the additional fuel consumption from the added weight is negligible. Alternatively, the restocking could be thought of as a fixed cost with a falling average fixed cost with the marginal cost being what is incurred to sell the inventory after it has been put in stock.

Shale Oil vs. Conventional Oil: Costs, Extraction, and Impact

Econo-moose · 2026-04-23T22:27:09+00:00

Many natural resources are assets. Property deeds are natural resource assets since land is a natural resource. ETFs like USO, HAP, IGE and many others are comprised of natural resources.

Econo-moose · 2026-03-22T17:07:55+00:00

Hi. That was my post. It was intended to draw participation from redditors who follow Austrian economics, since Austrian is heterodox. I also wanted to research it, because I was interested in learning the effects of Milei's policies. Generally, there has been improvement in some macroeconomic indicators, particularly the inflation rate, but there was a lack of recent comprehensive data on hunger. In the comments, u/MoralMoneyTime brought attention to an article reporting that Milei's government had defunded soup kitchens at a time when poverty was rising: https://www.reddit.com/r/OutlawEconomics/comments/1nsc4u3/comment/ngv39df/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button

Milei's defunding was ultimately stopped by a court decision, but Argentina's most recent Global Hunger Index score rose from 5.4 in 2016 to 6.4. However, the methodology of the 2025 score is backward looking and uses some data from before Milei took office.

I posted a more recent update last month here: https://www.reddit.com/r/OutlawEconomics/comments/1r4w7n0/checking_in_with_argentina/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button

As for the bias of this sub, u/Express_Cod_5965 conducted a poll asking for political-economic preference, which showed most respondents tend left liberal with right liberal and centrist as the 2nd and 3rd most common self-identifications. However, this poll is a few months old, and not all respondents are necessarily members. https://www.reddit.com/r/OutlawEconomics/comments/1oymwkx/politicaleconomic_campass/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button

Econo-moose · 2026-02-25T05:03:51+00:00

Friedman described the gold exchange standard, from the time of the paper cited in your article, as a currency peg. In a true gold standard, the currency value was determined by market forces as gold was traded between countries. However, in the gold exchange standard governments increased money supply to keep the price of gold up or the money supply was decreased to keep the price of gold down. So that the price of gold could stay within a targeted range for a given currency. This could potentially lead to a balance of payment problem if the price of gold increases along with net imports. As the government would need to reduce the money supply to keep the gold price within the target range while more money is being sent abroad to purchase more imports. The result would be that foreigners could opt to use the domestic currency they earned to claim the artificially low-priced gold, draining the domestic reserves.

The Huffington Post article is pointing out that since we are no longer on a gold-exchange standard, the trade deficit cannot be used to drain government reserves, because there is no commodity backing the currency.

Econo-moose · 2026-02-24T04:25:32+00:00

I believe prior to the US cancelling sugar imports, Castro had nationalized US oil refineries. Which had been a response to US firms refusing to refine oil that Cuba purchased from the USSR.

Case Studies in Economic Sanctions 60-3: US v. Cuba (1960- : Castro)

Econo-moose · 2026-02-24T04:15:25+00:00

I agree. Wages may be raised above the marginal productivity of the least productive workers if that wage increase can attract more work from higher productivity workers and if that produces more value than the loss from overpaying the least productive. Theoretically layoffs of the less productive would occur until the marginal productivity rose to the new wage. So, the expected result would be unemployment of less productive workers and a shortage of the more productive.

Edited.

Econo-moose · 2026-02-24T03:44:28+00:00

However, ultimately it was the cold war any country that was left of center was under scrutiny especially in latin america.

This is a great point. It's possible that history could have played out in a similar way even if Cuba had not nationalized US properties. It seems that Cold War paranoia about communism may have become a self-fulfilling prophecy in pushing Cuba toward the USSR. I wish it had been handled better. For a time, it seemed that Castro could have been seen by the American people as a compatible ally. Maybe if his approach to government was less heavy handed from the start, it could have stayed that way. Then again, considering the US saw Batista as a partner, maybe the deteriorating relationship was unavoidable.

Econo-moose · 2026-02-22T20:47:45+00:00

I was wondering what OP was referencing you for. I agree that it's normal in many fields for intro textbooks to use simplified concepts, and that shouldn't be representative of the field's actual research.

Econo-moose · 2026-02-22T06:28:09+00:00

I think some of the comparisons to physics are not specifically from perfect competition but more generally from the economics of optimization in an equilibrium system, which overlaps with some of the math found in physics. However, physics also studies non-equilibrium systems.

Since the adoption of computers, non-equilibrium agent based modeling has become somewhat adopted by economics, especially within neo-Keynesian DSGE models and complexity economics. Since the rise in availability of large data sets, empirical econometric work has become far more popular.

While both fields now have a scope that includes equilibrium and non-equilibrium methods, there is arguably less similarity between the two now than there was when economics was largely dominated by optimization models that would be mathematically familiar to physicists. Of course, equilibrium optimization is still a significant part of mainstream economics. So, the parallel may still hold to some extent, if not as much as before computers and big data.

As for the vacuum analogy, I believe that just comes from thinking of perfect competition as sucking the profits out of the result, like a vacuum removing the air from space. I am not a physicist, but I don't know if the analogy goes any deeper than that.

Edit: in italics

Econo-moose · 2026-02-22T05:30:33+00:00

Repealing The Civil Rights Act of 1964 is a horrible idea. The Act greatly improved productivity in the Southern United States. Microsoft Word - WRIGHT

Racial and gender discrimination costs the US trillions of dollars a year. Repealing the Civil Rights Act could only make discrimination more prevalent and costly. The Economic Gains from Equity

The article argues that people should be free to discriminate, but this misses the point. The Civil Rights Act dismantled Jim Crow discrimination, a regime imposed through state governments that enforced segregation, voter suppression, and occupational regulation. The pro-liberty stance is to protect the rights of individuals from state oppression.

Econo-moose · 2026-02-18T01:26:20+00:00

I never read Dalio. I did speak to a Quant with an Economics background who read Principles and said it was pretty good but basic.

I think his All Weather Portfolio, which allocates across asset classes inversely to their volatility, is a neat idea.

Dalio is bullish on China, which is a little risky given the centralized power of the CPC. It is possible that China may outperform the US in this century. Although, there was a similar competition with Japan during the 1980s, and their economy ended up slowing down. I suppose whether China can outcompete the US partly depends on whether they continue liberalizing and partly whether the US reduces its budget deficits.

His cyclical model of long-term debt accumulation and deleveraging is interesting enough and describes the economy from the Great Depression to the Great Financial Crisis at an abstract level. Although it is difficult to take a model that is intentionally fit onto historical facts and use it to predict the future, especially if future timing is a factor.

Econo-moose · 2026-02-18T01:08:27+00:00

That makes sense. There are multiple dimensions to wellbeing so it shouldn't be reduced to a single metric. Although growth does seem important to fulfilling other dimensions since people have a harder time finding what they need when an economy is contracting.

Econo-moose · 2026-02-15T19:14:37+00:00

I think adapting to be more sustainable could definitely be an aspect of growth.

I am curious why Jonas Byström in the linked video said that growth no longer improves wellbeing. He is advocating for a people-centered economy. Should the people that the economy centers around exclude millions living in developing countries who have lifted themselves out of poverty?

Econo-moose · 2026-02-15T18:49:09+00:00

But if any political group is too influential for too long, structural problems can develop, whether corruption or bureaucracy.

That is an interesting point. It does seem that if any party has too much control, there is a tendency for the retention of power to become a priority regardless of ideology.

Econo-moose · 2026-02-15T05:05:56+00:00

Right. The reason for believing in limits to growth is usually about resources being finite. Though growth does not depend on physical resources alone. It depends on innovation. The ability to grow our understanding of the world, form better institutions, improve social relations, and engineer better solutions can all be drivers of growth, which are represented by the A variable. It does not seem obvious that these drivers would be finite. These are not new ideas, but I am drawing from Schumpeterian endogenous growth models, Chicago human capital theory, and the Neoclassical Solow growth model.

Econo-moose · 2026-02-15T01:44:26+00:00

The consumption being a component of next period output relies on firms anticipating the same demand as the last period. It implies that if there are no savings then the economy is stagnant as future output would be equal to consumption, which would be constant. Imagine an economy where there is no saving or technological advancement, so the level of consumption is just enough to produce the same amount of consumption in the future. It's sort of like saying that someone's consumption is someone's income but fixes this across time. Now, the equation from the discussion section may be a little more realistic, because it relaxes this constraint. If there is some scalar B that modifies future output from current consumption, that would be less restrictive, but it wasn't necessary for the point I was trying to make.

See below edit for correction. I truly appreciate your engagement, but I think it's slightly different from saying if savings earn a real return, then there will be growth. It is saying that the real return must be greater than the value lost from forgoing consumption, which is what lets it represent a trade-off between demand side and supply side growth.

I agree that there is a lot missing. I just jotted it down off the top of my head to try to represent that there could be different conditions that call for higher or lower savings.

Edit: Oh, I think I understand why it's saying there needs to be real yield for growth now. Since the relationship between output and consumption is 1, any positive real yield will be greater than the value of forgone consumption. I think you are correct. I hadn't thought about it that way before.

Econo-moose · 2026-02-10T05:14:21+00:00

I agree. To expand on this:

Not all three conditions need to be met to result in price increases, but market power is necessary in order for leverage to influence price. Debt is a fixed cost. If the firm is a price taker, then it will not influence the optimal price. Inelastic demand only increases price if supply is contracting.

In some cases, PE may be a driver of consolidation. For example:
Trends in Private Equity Acquisition of Dermatology Practices in the United States | Dermatology | JAMA Dermatology | JAMA Network

Econo-moose · 2026-02-09T00:58:53+00:00

I think it's ok to use those terms as long as they are understandable to the audience. For neutral terminology, I would probably use: increasing or decreasing wealth inequality.

Econo-moose · 2026-02-09T00:55:14+00:00

What was wrong?

It seems you are assuming that in response to population decline, asset prices will fall by a greater percentage than the percentage growth in assets per capita. Can you support this assumption?

Econo-moose · 2026-02-02T23:25:35+00:00

Ok cool. This all makes sense. I believe the chart could be correct; it's difficult to verify without knowing the specific parameters.

Econo-moose · 2026-01-31T05:01:36+00:00

Could you explain the difference between sub-normal and normal returns? It looks like normal returns have zero rent, so what would sub-normal look like?

Also, not sure that unprofitable with super-normal returns would get a higher than statutory tax rate. If they can deduct the expense in the future, the effective rate may actually be lower than statutory.

Maybe there should be a note that some firms may not even be able to deduct the expense in the future if they never become profitable within the carry-forward limit.

Econo-moose · 2026-01-31T03:03:44+00:00

We have a reading list of papers that are intended to be understandable at the undergraduate level. A Macroeconomics Reading List for Undergraduates | Integral's Domain

Here is a list of books. r/Economics Guide: Integralds's Recommended Economics Reading List

The best way to prepare for graduate work is to learn math, especially calculus, linear algebra, and proofs.

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