The Average and Marginal Domestic Resource Cost of Foreign Exchange

The average and marginal shadow domestic resource costs of earning or saving foreign exchange by expanding the gross outputs of particular industries are distinguished: the shadow costs of specific factors are included in the former concept but excluded from the latter, which is shown to be the appropriate guide to piecemeal reform of taxes on gross output. Applied DRC studies have generally attempted to estimate average DRCs, despite the fact that, correctly measured and in the absence of quantity restrictions and imperfect competition, the average DRC of a private firm must be unity.