Brian, thank you. As always, an interesting, thought provoking summary of an interesting, complex topic. I do have a request, though: didn't particularly get the essence of the para "Panzar proves two important results. First, there should always be excess capacity. The idea is that with a neoclassical production function, more capital doesn’t just provide capacity but is also a substitute for the variable costs. At the optimum solution, the marginal cost of capital should equal the marginal cost of other inputs and you shouldn’t be “at capacity”. This is an analog of the more traditional result that firms should never drive the marginal product of any costly input to zero. The firm should have “excess’ production capabilities." Any way this all has a more simple English interpretation? Would make it more clear for me.
Brian, thank you. As always, an interesting, thought provoking summary of an interesting, complex topic. I do have a request, though: didn't particularly get the essence of the para "Panzar proves two important results. First, there should always be excess capacity. The idea is that with a neoclassical production function, more capital doesn’t just provide capacity but is also a substitute for the variable costs. At the optimum solution, the marginal cost of capital should equal the marginal cost of other inputs and you shouldn’t be “at capacity”. This is an analog of the more traditional result that firms should never drive the marginal product of any costly input to zero. The firm should have “excess’ production capabilities." Any way this all has a more simple English interpretation? Would make it more clear for me.