The Concept Of Attributable Cost
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More than forty years' discussion has produced fairly substantial agreement as to what kinds of costs are relevant to short-run decisions. The route pointed out by J. M. Clark [3] has since become a well-traveled road, and has led to near-unanimity of treatment in most textbooks in elementary and cost accounting. For short-run problems, the appropriate cost concept is the sum of the marginal costs over the range of each output differential between the alternatives under review.' In practice, this is often approximated by the summation of average variable cost (assumed to be constant over the affected output range), with differential fixed costs recognized when significant. In this paper I propose to examine the relevance of costs to a different class of decisions which I shall refer to as quantitative policy decisions. It is my contention that there is a separate category of this sort, that it is quantitatively important, and that it requires cost accumulations different from those typically applied in short-run analysis. The concept underlying these accumulations is the concept of attributable cost.
[1] R. H. Leftwich. The price system and resource allocation , 1956 .
[2] Jack Hirshleifer,et al. The Firm's Cost Function: A Successful Reconstruction? , 1962 .
[3] John Maurice Clark,et al. Studies in the economics of overhead costs , 1924 .
[4] A. Alchian. COSTS AND OUTPUTS , 1958 .