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Marginalism is one of the most understandable and widely accepted economic theories, what is your alternative?

littlestymaar 1y ago
Marginal thinking is useful on the demand side (that's what the marginal revolution was about). But it makes absolutely zero sense on the supply side: for pretty much every business, upfront costs dwarf marginal cost of production. Think of most businesses: the salaries are negotiated in advance, you must order stuff to your suppliers before you can sell them and all the CapEx is spent before you can use the productive capital. The cost of producing one more item with what you already have paid (inputs+workers+capital) is pretty much zero. What makes sense if working on average costs, and that's why it's the metric that is being used by every real companies out there. But then you can't show the nice graphic showing supply and demand curves nicely crossing each other at the equilibrium price anymore… Economists should have ditched Ricardo's view of the supply side long ago like they did for the demand side (labor theory of value was crap and was rightly abandoned).
- daedrdev 1y ago
  In a busy season at work more people work overtime, which is a very simple a marginal cost that increases with production. If we have a sudden surge in production, suppliers can get us goods much faster than usual but only if we pay more, another marginal cost, no? If there is not marginal cost, then there is never decreasing economies of scale, which is blatantly wrong if you've ever seen the HR of a company get less efficient as it grows I get that the marginal cost to copying a piece of software is a few cents of electricity, but for sure in the real world there are plenty of marginal costs.
  - littlestymaar 1y ago
    > In a busy season at work more people work overtime, which is a very simple a marginal cost that increases with production. It's not a marginal cost, it's yet another incremental upfront cost: you usually pay your employees to stay an hour more, you don't pay them some amount of money depending on how many things have been sold over the said hour. The last, emphasized part, is the key: the fundamental realization of the marginal revolution is that value isn't created when something is manufactured (which was Ricardo's labor theory of value) but when someone found it useful enough to buy it (that's marginal theory of value). > If we have a sudden surge in production, suppliers can get us goods much faster than usual but only if we pay more, another marginal cost, no? Marginal cost is about how supply volume, not speed, incurs costs, so it's irrelevant. Most of the time suppliers give you a discount the more stuff you buy at once by the way. > If there is not marginal cost, then there is never decreasing economies of scale, I don't know how you get to such a conclusion, if average cost goes up, there you go.
    - daedrdev 1y ago
      I think you misunderstand what marginal cost is in economics.
      - littlestymaar 1y ago
        Quite the opposite, actually.
- BlandDuck 1y ago
  Standard theories of production clearly distinguish between fixed and variable costs. Moreover, it is well understood that this distinction depends on the time horizon, with more costs being variable for longer horizons. Moreover, concepts like economics of scale (with low marginal costs of producing an additional unit, as you state as an example) are well understood for certain products in certain circumstances. The distinction between and relevance of average and marginal costs is taught in undergraduate classes. Whether or not you can draw a nice diagram of supply and demand is pretty irrelevant for professional economists and our understanding of markets, their dynamics, and equilibria.
  - littlestymaar 1y ago
    How economics is practiced has nothing to do with how it it taught though, which is the topic here. > The distinction between and relevance of average and marginal costs is taught in undergraduate classes. Yes, and what's being taught is exactly the problem. Marginal cost is a red herring. > Moreover, concepts like economics of scale (with low marginal costs of producing an additional unit, as you state as an example) are well understood for certain products in certain circumstances. This kind of sentences is a good summary of what's wrong with teaching the concept of marginal cost: it assumes that economies of scale is a phenomenon limited to “certain circumstances”, when in reality it affects 90%+ of the economic activities and it shapes pretty much everything around us. Thinking about marginal costs leads to missing the crucial point of any business, no matter its size or market: breaking even.

Marginal thinking is useful on the demand side (that's what the marginal revolution was about). But it makes absolutely zero sense on the supply side: for pretty much every business, upfront costs dwarf marginal cost of production. Think of most businesses: the salaries are negotiated in advance, you must order stuff to your suppliers before you can sell them and all the CapEx is spent before you can use the productive capital. The cost of producing one more item with what you already have paid (inputs+workers+capital) is pretty much zero. What makes sense if working on average costs, and that's why it's the metric that is being used by every real companies out there. But then you can't show the nice graphic showing supply and demand curves nicely crossing each other at the equilibrium price anymore… Economists should have ditched Ricardo's view of the supply side long ago like they did for the demand side (labor theory of value was crap and was rightly abandoned).

daedrdev 1y ago
In a busy season at work more people work overtime, which is a very simple a marginal cost that increases with production. If we have a sudden surge in production, suppliers can get us goods much faster than usual but only if we pay more, another marginal cost, no? If there is not marginal cost, then there is never decreasing economies of scale, which is blatantly wrong if you've ever seen the HR of a company get less efficient as it grows I get that the marginal cost to copying a piece of software is a few cents of electricity, but for sure in the real world there are plenty of marginal costs.
- littlestymaar 1y ago
  > In a busy season at work more people work overtime, which is a very simple a marginal cost that increases with production. It's not a marginal cost, it's yet another incremental upfront cost: you usually pay your employees to stay an hour more, you don't pay them some amount of money depending on how many things have been sold over the said hour. The last, emphasized part, is the key: the fundamental realization of the marginal revolution is that value isn't created when something is manufactured (which was Ricardo's labor theory of value) but when someone found it useful enough to buy it (that's marginal theory of value). > If we have a sudden surge in production, suppliers can get us goods much faster than usual but only if we pay more, another marginal cost, no? Marginal cost is about how supply volume, not speed, incurs costs, so it's irrelevant. Most of the time suppliers give you a discount the more stuff you buy at once by the way. > If there is not marginal cost, then there is never decreasing economies of scale, I don't know how you get to such a conclusion, if average cost goes up, there you go.
  - daedrdev 1y ago
    I think you misunderstand what marginal cost is in economics.
    - littlestymaar 1y ago
      Quite the opposite, actually.
BlandDuck 1y ago
Standard theories of production clearly distinguish between fixed and variable costs. Moreover, it is well understood that this distinction depends on the time horizon, with more costs being variable for longer horizons. Moreover, concepts like economics of scale (with low marginal costs of producing an additional unit, as you state as an example) are well understood for certain products in certain circumstances. The distinction between and relevance of average and marginal costs is taught in undergraduate classes. Whether or not you can draw a nice diagram of supply and demand is pretty irrelevant for professional economists and our understanding of markets, their dynamics, and equilibria.
- littlestymaar 1y ago
  How economics is practiced has nothing to do with how it it taught though, which is the topic here. > The distinction between and relevance of average and marginal costs is taught in undergraduate classes. Yes, and what's being taught is exactly the problem. Marginal cost is a red herring. > Moreover, concepts like economics of scale (with low marginal costs of producing an additional unit, as you state as an example) are well understood for certain products in certain circumstances. This kind of sentences is a good summary of what's wrong with teaching the concept of marginal cost: it assumes that economies of scale is a phenomenon limited to “certain circumstances”, when in reality it affects 90%+ of the economic activities and it shapes pretty much everything around us. Thinking about marginal costs leads to missing the crucial point of any business, no matter its size or market: breaking even.