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increments of a commodity yield DIMINISHING MARGINAL UTILITY.

      Friedrich von Wieser developed the tradition further, being credited with introducing the economic concept of OPPORTUNITY COST. Eugen von Böhm-Bawerk helped to develop the theory of INTEREST and CAPITAL, arguing that the price paid for the use of capital is dependent upon consumers’ demand for present CONSUMPTION relative to future consumption. Ludwig von Mises and Friedrich von Hayek subsequently continued the tradition established by Carl Menger et al. See also CLASSICAL ECONOMICS.

      authorized or registered or nominal share capital the maximum amount of SHARE CAPITAL that a JOINT-STOCK COMPANY can issue at any time. This amount is disclosed in the BALANCE SHEET and may be altered by SHAREHOLDERS at the company ANNUAL GENERAL MEETING. See also ISSUED SHARE CAPITAL.

      automatic (built-in) stabilizers elements in FISCAL POLICY that serve to automatically reduce the impact of fluctuations in economic activity. A fall in NATIONAL INCOME and output reduces government TAXATION receipts and increases its unemployment and social security payments. Lower taxation receipts and higher payments increase the government’s BUDGET DEFICIT and restore some of the lost income (see CIRCULAR FLOW OF NATIONAL INCOME MODEL). See FISCAL DRAG.

      automatic teller machine (ATM) a cash point (‘hole in the wall’) facility in which a banker’s card can be used by a customer of a COMMERCIAL BANK or BUILDING SOCIETY to withdraw cash both inside and outside banking hours. The ‘Link’ network enables customers to use their cards in the ATMs of other banks as well as their own.

      automatic vending a means of retailing products to consumers via vending machines. Automatic vending has been employed extensively in selling, for instance, food, beverages and cigarettes. The use of vending machines has also become prominent in the banking/building society sector as a means of dispensing cash.

      automation the use of mechanical or electrical machines, such as robots, to undertake frequently repeated production processes to make them self-regulating, thus minimizing or eliminating the use of labour in these processes. Automation often involves high initial capital investment but, by reducing labour costs, cuts VARIABLE COST per unit. See FLEXIBLE MANUFACTURING SYSTEM, PRODUCTIVITY, TECHNOLOGICAL PROGRESSIVENESS, CAPITAL-LABOUR RATIO, MASS PRODUCTION, COMPUTER.

      autonomous consumption that part of total CONSUMPTION expenditure that does not vary with changes in NATIONAL INCOME or DISPOSABLE INCOME. In the short term, consumption expenditure consists of INDUCED CONSUMPTION (consumption expenditure that varies directly with income) and autonomous consumption. Autonomous consumption represents some minimum level of consumption expenditure that is necessary to sustain a basic standard of living and which consumers would therefore need to undertake even at zero income. See CONSUMPTION SCHEDULE.

      autonomous investment that part of real INVESTMENT that is independent of the level of, and changes in, NATIONAL INCOME. Autonomous investment is mainly dependent on competitive factors such as plant modernization by businesses in order to cut costs or to take advantages of a new invention. See INDUCED INVESTMENT, INVESTMENT SCHEDULE.

      Fig. 10 Average cost (long-run). (a) The characteristic U-shape of the long-run average cost curve. (b)The characteristic L-shaped curve that in practice normally results from expansion.

      average cost (long-run) the unit cost (TOTAL COST divided by number of units produced) of producing outputs for plants of different sizes. The position of the SHORT-RUN average total cost (ATC) curve depends on its existing size of plant. In the long run, a firm can alter the size of its plant. Each plant size corresponds to a different U-shaped short-run ATC curve. As the firm expands its scale of operation, it moves from one curve to another. The path along which the firm expands – the LONG-RUN ATC curve – is thus the envelope curve of all the possible short-run ATC curves. See Fig. 10 (a).

      It will be noted that the long-run ATC curve is typically assumed to be a shallow U-shape, with a least-cost point indicated by output level OX. To begin with, average cost falls (reflecting ECONOMIES OF SCALE); eventually, however, the firm may experience DISECONOMIES OF SCALE and average cost begins to rise.

      Empirical studies of companies’ long-run average-cost curves, however, suggest that diseconomies of scale are rarely encountered within the typical output ranges over which companies operate, so that most companies’ average cost curves are L-shaped, as in Fig. 10 (b). In cases where diseconomies of scale are encountered, the MINIMUM EFFICIENT SCALE at which a company will operate corresponds to the minimum point of the long-run average cost curve (Fig. 10 (a)). Where diseconomies of scale are not encountered within the typical output range, minimum efficient scale corresponds with the output at which economies of scale are exhausted and constant returns to scale begin (Fig. 10 (b)). Compare AVERAGE COST (SHORT-RUN).

      average cost (short-run) the unit cost (TOTAL COST divided by the number of units produced) of producing particular volumes of output in a plant of a given (fixed) size.

      Average total cost (ATC) can be split up into average FIXED COST (AFC) and average VARIABLE COST (AVC). AFC declines continuously as output rises as a given total amount of fixed cost is ‘spread’ over a greater number of units. For example, with fixed costs of £1,000 per year and annual output of 1,000 units, fixed costs per unit would be £1, but if annual output rose to 2,000 units, the fixed cost per unit would fall to 50 pence – see AFC curve in Fig. 11 (a).

      Over the whole potential output range within which a firm can produce, AVC falls at first (reflecting increasing RETURNS TO THE VARIABLE FACTOR INPUT output increases faster than costs), but then rises (reflecting DIMINISHING RETURNS to the variable inputs – costs increase faster than output), as shown by the AVC curve in Fig. 11 (a). Thus the conventional SHORT-RUN ATC curve is U-shaped.

      Fig. 11 Average cost (short-run). (a) The characteristic curves of average total cost (ATC), average variable cost (AVC), and average fixed cost (AFC), over the whole output range. (b) The characteristic curves of ATC and AFC and constant line of AVC over the restricted output range.

      Over the more restricted output range in which firms typically operate, however, constant returns to the variable input are more likely to be experienced, where, as more variable inputs are added to the fixed inputs employed in production, equal increments in output result. In such circumstances, AVC will remain constant over the whole output range, as in Fig. 11 (b), and as a consequence ATC will decline in parallel with AFC. Compare AVERAGE COST (LONG-RUN). See LOSS, LOSS MINIMIZATION.

      average-cost pricing 1 a pricing method that sets the PRICE of a product by adding a percentage profit mark-up to AVERAGE COST or unit total cost. This method is identical in most respects to FULL-COST PRICING; indeed, the terms are often used interchangeably.

      2 a pricing principle that argues for setting PRICES equal to the AVERAGE COST of production and distribution, so that prices cover both MARGINAL COSTS and FIXED OVERHEADS costs incurred through past investments. This involves the (sometimes arbitrary) apportionment of fixed (overhead) costs to individual units of output, though it does seek to recover in the price charged all the costs that would have been avoided by not producing the product. See MARGINAL-COST PRICING, TWO-PART TARIFF.

      average fixed cost see AVERAGE COST (SHORT-RUN).

      average physical product the average OUTPUT in the SHORT-RUN theory of supply produced by each extra unit of VARIABLE FACTOR INPUT (in conjunction with a given amount of FIXED FACTOR INPUT). This is calculated by dividing the total quantity of OUTPUT produced by the number of units of input used. In the SHORT RUN theory of supply, average physical

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