Except that the bridge at "10% of normal cost" is only possible because of the sunk costs (either the owner or a seller of a 90% complete bridge), and discrete vs. continuous production functions.
The micro text by Goodwin, Nelson, Ackerman, and Weisskopf does include quite a complete discussion.
They say that marginal decision-making as sufficient for analysis depends on the assumption of "convexity." Alternative assumptions include non-convexity such as discrete units, as well as path dependence, increasing returns, switching costs, network externalities, and fiancial capital constraints. See pp. 178-188 in the 2005 edition.
Ann At 07:38 PM 9/3/2009, you wrote:
I like his example of a 90% completed bridge. The owner still will disregard the sunk costs, but will see the decision as to whether to build a bridge for 10% of the normal cost. The response will be the same whether or not the builder has already committed money to the project or not. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu michaelperelman.wordpress.com _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
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