NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Robert E. Hall

NBER Working Paper No. 1785 (Also Reprint No. r1092)
Issued in 1986
NBER Program(s):   EFG   PE

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.

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Document Object Identifier (DOI): 10.3386/w1785

Published: Journal of Political Economy, Vol. 96, No. 5, pp. 921-947, (1988). citation courtesy of

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