An examination of data on output and labor input reveals that some U.S. industries have marginal cost well below price. The conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output. In booms, firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs. The paper documents the disparity between price and marginal cost, where marginal cost is estimated from annual variations in cost. It considers a variety of explanations of the findings that are consistent with competition, but none is found to be completely plausible.

In this paper, the characteristics model of Lancaster is reconsidered. It is shown by example that equilibrium prices need not be linearly decomposable. It does follow that equilibrium prices must be a convex function of characteristics, however. Further, it is shown that this fact holds independent of the form of firm competition (e.g., perfect or monopolistic). Finally, the predictions of the theory are discussed in the context of two empirical examples.

In this paper, the characteristics model of Lancaster is reconsidered. It is shown by example that equilibrium prices need not be linearly decomposable. It does follow that equilibrium prices must be a convex function of characteristics, however. Further, it is shown that this fact holds independent of the form of firm competition (e.g., perfect or monopolistic). Finally, the predictions of the theory are discussed in the context of two empirical examples.

One of the important determinants of the response of saving and consumption to the real interest rate is the elasticity of intertemporal substitution. That elasticity can be measured by the response of the rate of change of consumption to changes in the expected real interest rated. A detailed study of data for the twentieth-century United States shows no strong evidence that the elasticity of intertemporal substitution is positive. Earlier findings of substantially positive elasticities are reversed when appropriate estimation methods are used.

An examination of data on output and labor input reveals that some U.S. industries have marginal cost well below price. The conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output. In booms, firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs. This paper documents the disparity between price and marginal cost, where marginal cost is estimated from annual variations in cost. It considers a variety of explanations of the findings that are consistent with competition, but none is found to be completely plausible.

One of the important determinants of the response of saving and consumption to the real interest rate is the ela sticity of intertemporal substitution. That elasticity can be measure d by the response of the rate of change of consumption to changes in the expected real interest rate. A detailed study of data for the twe ntieth-century United States shows no strong evidence that the elasti city of intertemporal substitution is positive. Earlier findings of s ubstantially positive elasticities are reversed when appropriate esti mation methods are used.