This technical note provides new economic measures of the flexible price level, flexible output level and marginal costs for the UK. Using a straightforward decomposition from first principles this technical note shows that the flexible price level in period t is a weighted average of the period t and t -1 price levels – where the weights are determined by the proportion of firms adjusting their price. Similarly, the flexible output level in period t is a weighted average of the period t and t – 1 output levels – where the weights are determined by the proportion of firms altering their production plans. For the proportion of firms which do not alter their production plans, straightforward calculus shows their change in average costs is proportional to marginal costs. Using a unique dataset (of firm-level survey responses on changes in price and output), this technical note constructs flexible price indices, flexible output indices and marginal cost indices for the UK.
