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MARGINAL FACTOR COST AND AVERAGE FACTOR COST: The relation between marginal factor cost and average factor cost is comparable to other average-marginal relations found in the study of economics. For a firm that hires factors in a perfectly competitive factor market, marginal factor cost and average factor cost are equal, and equal to the factor market price. All three are represented by a horizontal, or perfectly elastic, curve equal to the factor market price. For a firm that hires factors in an imperfectly competitive factor market, especially monopsony, marginal factor cost is greater than both average factor cost and the factor market price.

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NATIONALIZATION:

The process in which a national government takes over the ownership of a private business or industry, usually, but not always, in conjunction with a major revolution that establishes a communist or socialist command economy.
Nationalization was a common practice, something of a fad, undertaken by several developing countries in Latin American, Asia, and Africa during the 1950s, 1960s, and 1970s. Non-revolutionary industrialized countries in Europe jumped onto the nationalization bandwagon, as well. Even the United States took at stab at nationalizing passenger train service when Amtrak was established in 1970.

While almost any industry can be subject to nationalization, the ones most commonly taken over by governments are transportation, communication, energy, and heavy manufacturing. The logic is that these industries tend to be both vital to a nation's economy and inclined toward natural monopoly if left to private ownership.

The nationalization trend was largely reversed in the 1980s, with the emergence of the reverse fad--privatization. As much as anything else, these two alternatives reflect the ongoing tug and pull of competing political views.

  • Conservatives tend to favor market allocation and private ownership of resources. Privatization is their fad of choice.

  • Liberals, in contrast, tend to favor paternalistic government allocation and ownership of resources. Nationalization is a better fitting fad for their philosophy.
However, given the efficiency of competitive markets, the necessary functions of government, and the ever present fifth rule of imperfection, neither fad is likely to perpetually exclude the other.

The basic notion of nationalization, however, also occurs in a more limited form at the state and local level through eminent domain. Eminent domain is the notion that governments have ultimate ownership and control over land and other resources within their boundaries. A city, for example, might enact the powers of eminent domain to take control over a parcel of land that will be used to construct a public street.

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Check Out These Related Terms...

     | privatization | exploitation | paternalism |


Or For A Little Background...

     | communism | socialism | command economy | conservative | liberal | ownership and control | fifth rule of imperfection | private sector | public sector |


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     | political views | government functions | economic goals | four estates | economic system |


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