Managerial economics : analysis and strategy by Douglas Evan J. 1946-

Author:Douglas, Evan J., 1946-
Language: eng
Format: epub
Tags: Managerial economics, Économie d'entreprise, Betriebswirtschaftslehre, Mikroökonomie, Gestion d'entreprise, Planification stratégique, Economie d'entreprise, Mikroo˜konomie, Planification strategique
ISBN: 9780314064332
Publisher: Englewood Cliffs, N.J. : Prentice-Hall
Published: 1987-08-05T16:00:00+00:00

1

1,500

7,350

4-90j

2

3,500

12,600

3.60

3

6,150

18,143

2.95 v

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8,750

26,688

3.05*

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11,100

43,290

3.90?

334 Production and Cost Analysis

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FIGURE 8-8. Estimation of Long-Run Average Cost Curve from Cross-Section Data

indicate economies or diseconomies of plant size where the cost differences are actually due to differences in factor prices and productivities. Alternatively, the differences in these things may completely obscure the existence of those economies and diseconomies of plant size that would be seen if the influence of differing factor prices and productivities could be removed from the data.

Estimation of the long-run average cost curve presumes that all plant sizes represented are of the same vintage and therefore incorporate the same technology. Moreover, this technology should be the latest technology. Part of the differences in labor productivity that will most likely exist in cross-section cost-output data will relate to differing vintages of the plants observed, ranging from almost new plants to older and much less efficient plants. (Any other differences in labor productivity will relate to differences in the workers’ education, training, motivation, and so on.) Regression analysis of cross-section cost-output data from plants of less than current vintage is likely to give unreliable results and should be avoided. A superior approach is to apply the engineering technique to all the different plant sizes that are currently available and that embody the latest technology.

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