Kwok C. Wong
June 1, 2016
There are fixed costs in production. One has to assemble rents earned in production lines to cover them. There are also fixed costs in consumption. Consumers assemble surpluses to cover them. In either case, rent assemblage could either be a quantity solution, a quality solution, or a combination of both. Once a fixed cost is committed by contract, it becomes historical. Yet compared to the option of paying this fixed cost all over again, increasing those quantities or qualities, which do not further increase this fixed cost, is less costly. The Law of Demand therefore implies the quality and/or the quantity solutions. The quality solution, as provided by the Alchian-Allen Theorem, is but a special case: where an increase in quality is the only viable solution under some specific real world constraints.