The Relation between Price and Marginal Cost in U.S. Industry

43 Pages Posted: 16 Jul 2004 Last revised: 19 Nov 2022

See all articles by Robert E. Hall

Robert E. Hall

Hoover Institution and Department of Economics, Stanford University; National Bureau of Economic Research (NBER)

Date Written: 1986

Abstract

An examination of data on labor input and the quantity of output reveals that most U.S. industries have marginal costs far below their prices. The corilusion rests on the empirical finding that cyclical variations in labor input are small compared to variations in output. In booms, firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs. The paper documents the disparity between price and marginal cost,where marginal cost is estimated from variations in cost from one year to the next. It considers a wide variety of explanations of the flndings that are consistent with competition, but none is found to be plausible.

Suggested Citation

Hall, Robert E., The Relation between Price and Marginal Cost in U.S. Industry (1986). NBER Working Paper No. w1785, Available at SSRN: https://ssrn.com/abstract=338831

Robert E. Hall (Contact Author)

Hoover Institution and Department of Economics, Stanford University ( email )

Stanford, CA 94305-6010
United States
650-723-2215 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
650-723-2215 (Phone)

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