Enterprises Charging Marginal Costs May Face Financial Deficits: Study
Enterprises that charge prices equal to marginal costs may face financial deficits due to factors like increasing or constant returns to scale. In the constant-returns-to-scale scenario, using inputs with significant indivisibilities is crucial, and optimal capacity should have short-run marginal cost lower than long-run marginal cost. The increasing-returns-to-scale case includes examples like bridges, where demand is consistently below average total cost.