Working Paper BETA #2013-13

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Title : Fixed cost, variable cost, markups and returns to scale.

Author(s) : Xi Chen, Bertrand M. Koebel

Abstract : This paper derives the structure of a production function which is necessary and sufficient for generating a fixed cost. We extend the classical production function in order to allow each input to have a fixed and a variable part. We characterize and estimates both fixed and variable components of the cost function and studies how fixed and variable costs interact and affect firms' behavior in terms of price setting and returns to scale.

Key-words : identification, imperfect competition, returns to scale, unobserved heterogeneity.

JEL Classification : C33, D24, E10, J23, L60.