Rising Marginal Costs: where is the empirical evidence?

Question

I was trying to find some kind of survey of the empirical literature on the evidence of firms operating under rising marginal costs. Recently I was in contact with Alan Blinder's 1998 book Asking About Prices: A new Approach to Understand Price Stickeness and the book shows a research on firms mentioning that they operate mostly under falling or constant marginal costs (in USA, almost 90% of them).

While I can raise some issues regarding the research, such as being the product of answers from the firms or that marginal costs are often not observed and must be estimated, I could not find a survey of the literature confirming this assumption (the evidence for behavior under rising marginal costs). Would anyone know where to begin?

Answer 1

Based on data/work with consultants/business school discussions with executives: A good example of a set of industries where marginal costs are rising is commodity production (metals, agricultural products, and energy such as oil). In such industries, companies own many plants (Glencore, BHP Billiton) and they tend to switch on production in a plant when the price is above the marginal cost of that plant. So it makes sense to order plants in increasing order of their marginal cost, and assume that the lowest-marginal-cost plant will be the last one to be shut down. Of course if the firm acquires a plant that has a lower marginal cost than the lowest-marginal-cost plant, it will shift that firm's marginal cost curve. Look for Carmin Nappi's slides online on the aluminum industry, plenty of that analysis going on.

Some of the slides are in here, see slide 11. http://www.riotinto.com/documents/Media-Speeches/Rio_Tinto_Alcan_Carmine_Nappi_11_June_2008.pdf

Now this is a similar framework adopted by Pindyck, for instance in http://www.jstor.org/stable/41322920?seq=1#page_scan_tab_contents.

Answer 2

Very few to no firms operate under rising marginal costs for all operations. A good example of an instance where rising marginal costs exist, is when building a skyscraper each additional floor costs more to build than the last one. You need to hire a bigger crane, reinforce the lower floors more, install elevators etc.

I'm not quite sure what you mean by empirical literature on rising marginal cost? Any good econ textbook would provide examples such as those. What type of literature are you looking for exactly?