Comments on: Salerno: “Varieties of Austrian Price Theory: Rothbard Reviews Kirzner” http://archive.mises.org/18553/salerno-varieties-of-austrian-price-theory-rothbard-reviews-kirzner/ Proceeding Ever More Boldly Against Evil Fri, 24 May 2013 07:53:49 +0000 hourly 1 http://wordpress.org/?v=3.5.1 By: fundamentalist http://archive.mises.org/18553/salerno-varieties-of-austrian-price-theory-rothbard-reviews-kirzner/comment-page-1/#comment-802732 fundamentalist Wed, 28 Sep 2011 14:14:59 +0000 http://blog.mises.org/?p=18553#comment-802732 Rothbard: “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?”

Actually, the marginal revenue would be $10 and the marginal cost $9.9 because marginal means the addition of one more unit. In addition, marginal revenue isn’t marginal profit. The additional 10 units of production provide 10 more units over which to spread fixed costs, so fixed costs are lower and therefore profits are higher. The marginal costs = marginal revenue formula translates into lower marginal revenue, as Rothbard notes, but higher marginal profits. The goal is profit maximization, not revenue maximization. It’s easy to show that the formula does maximize profits. Whether the additional profit is greater than the money interest rate depends on the cost structure of the company and how much debt the company has.

I quit reading after a few pages. Rothbard’s comments just seem petty.

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