ABSTRACT
When discussing the relationship of costs and output, the emphasis will be on private costs for the firm. For policy purposes social costs are more relevant so that any conclusions arising from our discussion on the relationship between private costs and output may require modification before use in policy discussion. It is then useful to look at how different cost elements vary with output so that some assessment can be made as to whether a reduction in private costs with increased output is paralleled by a reduction in social costs. It is sometimes useful to distinguish between pecuniary and non-pecuniary economies. The former arise from changes in the price paid for inputs, whereas the latter arises from a change in the output/input ratio. Many, but not all, of the former are not changes in social costs though they are changes in private costs. This could arise, for example, from a reduction in the effective price of an input as the volume of purchase increased arising from an increase in monopsony power.
