Varieties of Austrian Price Theory

Varieties of Austrian Price Theory
- Highlight Loc. 135-40  | Added on Tuesday, November 22, 2011, 05:28 PM

Further, the result of abstention from capital leads to all the crucial errors of the “cost-curve” analysis. For example, it is the claim of the “cost-curve” theorists (in the ranks of which Prof. Kirzner joins) that a firm will invest funds in production up to the point where “marginal revenue” equals “marginal cost.” Setting aside the equality fallacy which I will comment on below, this means, e.g. that if an output of 10 more units will bring in $100 of revenue and cost $99, the firm will produce the 10 more units. Now I submit that this is a critical fallacy. Why should the owner of the firm invest a $100 more for an expected return of (approximately) 1%, when he can invest the same $100 for, say, 8% elsewhere—or get 5% at a savings bank?