Constant Average Cost Research Articles

Renewable portfolio standards and electricity prices

Green targets such as renewable portfolio standards have been popular in recent years, and various aspects of green targets have been studied. However, green targets have not always been supported, and one possible reason is that green targets may increase the electricity price. This paper analytically studies the long-run effects of renewable portfolio standards on the electricity price. The analysis shows that the effects depend on the nature of the long-run average cost. With a constant average cost, an increase in the stringency of the standard increases the electricity price. With an increasing average cost, the effects hinge on whether the average cost of green electricity increases faster or slower than that of brown electricity. The paper also considers the difference between the long-run effects and the short-run effects and the difference between the effects of an increase in the stringency of an existing standard and the effects of introducing a standard.

Returns to scale and average costs: A simple and generalized proof

We provide a simple and generalized proof for the result that increasing [decreasing] returns to scale imply decreasing [increasing] average costs and that constant returns to scale imply constant average costs. • Increasing [decr.,con.] returns to scale imply decreasing [incr.,con.] average costs. • We provide a simple and generalized proof for this result. • Our proof does not rely on methods of constrained optimization. • Differentiability of the production function is not needed.

Zero lost profit principle for solar compensation and its impact on bill savings

Several utilities and regulators are replacing net metering, the status quo policy that credits solar owners the retail electric price for each kilowatt-hour of excess solar power. So far avoided costs, the value of solar, and buy-all, sell-all models are implemented in place of net metering. This study proposes a zero lost profit principle for the design of solar compensation policies and evaluates impacts on electricity bill savings relative to other principles. A zero lost profit principle is defined as a solar compensation rate that leaves the utility indifferent between serving a solar and a non-solar household. Using constant average cost and extra-normal utility profit assumptions, we find that the zero lost profit principle (gross and net) does not lead to significant reductions in electricity bill savings. However, a net purchasing model based on the avoided cost principle leads to a 23% reduction in monthly bill savings relative to net metering. The framework proposed in this study provides utilities and regulators with additional principles for evaluating alternative solar compensation policies.

Operational research in weapon system

paper is divided into three parts: (a) The first part deals with what operational research is. (b)The second part gives what we mean by Weapon Systems and discusses considerations that determine the choice of a particular weapon system from a class weapon systems. (c)The third part deals with some aspects of weapon replacement policy.The effectiveness of a weapon system is defined as E=D/C where E is weapon effectiveness (a comparative figure of merit); D is total damage inflicted or prevented and C is total cost, D and C being reduced to common dimensions. During the course of investigations, criteria regarding to choice of weapon or weapons from a set of weapon systems are established through production function and military effect curves. A procedure is described which maximizes the expectation of military utility in order to select a weapon system from the class of weapon systems. This is done under the following simplifying assumptions: (a) Non- decreasing utility function; (b) Constant average cost for each kind of weapons; and (c) Independence of the performance of each unit of weapon. Some of the difficulties which arises when any of these restrictions is relaxed are briefly mentioned. Finally, the policy of weapon replacement and the factors governing the same are described.

Generation of logistics networks in freight transportation models

This article analyzes the concept of logistics networks in the context of behavioral freight transport modeling. Starting from the basic definition of networks, the different perceptions of networks in transportation science and logistics are worked out. The micro–macro gap, as a main challenge in freight transport modeling, is explained by the existence of logistics networks on a meso level. A taxonomy of modeling methods dealing with logistics networks is defined, based on two characteristics: the changeability of networks within models (fixed, partially variable and variable networks) and the form of cost functions mapped (economies of scale, constant average cost, and diseconomies of scale). For each category, different possible modeling methods and their application in existing freight transport models are discussed. A special focus is placed on methodologies and models that map variable networks.

Potential Design Flaws In ABC Systems And Suggested Safeguards

<span>ABC systems have received extensive attention in the last decade. The ABC literature has convincingly demonstrated that traditional cost systems systematically distort product costs. It is less widely recognized, however, that ABC systems can also distort costs if improperly designed. One notable cause of distortions in ABC systems is the assumption of constant average costs of all activities. This assumption and the design choices concerning the aggregation and the allocation procedures create great potentials for product and service cost distortions. The present article examines this problem and provides some solutions to enhance the accuracy and power of ABC systems. It will be argued that: (1.) Activity and product costs are not neutral to the process of cost aggregation and allocations; (2.) Many activity costs follow step or other nonlinear patterns. The ABC system designer should examine all activities for these patterns; (3.) Where activities are not proportional to cost drivers, pooling should be avoided; (4.) As product volume and product mix change, unit activity costs and other initial system parameters may change and render the ABC system less reliable. Frequent updating of the system is crucial under these conditions; and (5.) Frequent revisions and updating of the ABC system is equally crucial for companies that operate under rapid technological changes.</span>

Material and energy recovery in integrated waste management systems: A life-cycle costing approach

A critical assumption of studies assessing comparatively waste management options concerns the constant average cost for selective collection regardless the source separation level (SSL) reached, and the neglect of the mass constraint. The present study compares alternative waste management scenarios through the development of a desktop model that tries to remove the above assumption. Several alternative scenarios based on different combinations of energy and materials recovery are applied to two imaginary areas modelled in order to represent a typical Northern Italian setting. External costs and benefits implied by scenarios are also considered. Scenarios are compared on the base of the full cost for treating the total waste generated in the area. The model investigates the factors that influence the relative convenience of alternative scenarios.

On Near Optimality of the Set of Finite-State Controllers for Average Cost POMDP

We consider the average cost problem for partially observable Markov decision processes (POMDP) with finite state, observation, and control spaces. We prove that there exists an ϵ-optimal finite-state controller (FSC) functionally independent of initial distributions for any ϵ > 0, under the assumption that the optimal liminf average cost function of the POMDP is constant. As part of our proof, we establish that if the optimal liminf average cost function is constant, then the optimal limsup average cost function is also constant, and the two are equal. We also discuss the connection between the existence of nearly optimal finite-history controllers and two other important issues for average cost POMDP: the existence of an average cost that is independent of the initial state distribution, and the existence of a bounded solution to the constant average cost optimality equation.

Sequential Formation of Coalitions Through Bilateral Agreements in a Cournot Setting

We study a sequential protocol of endogenous coalition formation based on a process of bilateral agreements among the players. We apply the game to a Cournot environment with linear demand and constant average costs. We show that the final outcome of any subgame perfect equilibrium of the game is the grand coalition, provided the initial number of firms is high enough and they are sufficiently patient.

Does scale matter? The costs of HIV-prevention interventions for commercial sex workers in India.

To explore how the scale of a project affects both the total costs and average costs of HIV prevention in India. Economic cost data and measures of scale (coverage and service volume indicators for number of cases of sexually transmitted infections (STIs) referred, number of STIs treated, condoms distributed and contacts made with target groups) were collected from 17 interventions run by nongovernmental organizations aimed at commercial sex workers in southern India. Nonparametric methods and regression analyses were used to look at the relationship between total costs, unit costs and scale. Coverage varied from 250 to 2008 sex workers. Annual costs ranged from US$ 11 274 to US$ 52 793. The median cost per sex worker reached was US$ 19.21 (range = US$ 10.00-51.00). The scale variables explain more than 50% of the variation in unit costs for all of the unit cost measures except cost per contact. Total costs and unit costs have non-linear relationships to scale. Average costs vary with the scale of the project. Estimates of resource requirements based on a constant average cost could underestimate or overestimate total costs. The results highlight the importance of improving scale-specific cost information for planning.

Variation in Average Costs among Federally Sponsored State-Organized Cancer Detection Programs: Economies of Scale?

Societal cost-effectiveness analysis and its variants help decision makers achieve an efficient allocation of resources across the set of all possible health interventions. Sometimes, however, decision makers are focused instead on the efficient allocation of resources within a particular intervention program that has already been implemented. This is especially true when the intervention is being delivered at several different sites. An analysis of average cost across program sites may help program officials to maximize the health benefits that can be achieved with limited resources. In this article, the authors present such an analysis, with special attention paid to the possible existence and implications of economies of scale. Focusing on federally sponsored, state-organized cancer detection programs, the authors modeled 19 state programs as productive processes and examined their average costs over a 2- to 5-year period of operation. They considered 3 alternative definitions of output: women served, screens performed, and conditions detected. Average federal costs and average total costs were estimated for each grant period. Multivariate regression analysis was used to help explain the variation in average costs. The average cost estimates were distributed in a skewed pattern with the majority of observations falling close to the median and substantially below the mean. For all measures considered, average cost decreased as output expanded. This inverse relationship between average cost and output level persisted even after controlling for the effects of other predictors, suggesting the possible existence of economies of scale. The potential existence of economies of scale calls into question the assumption of a constant average cost frequently made in economic analyses of proposed public health programs. It also implies that a) differences in output level should be taken into account when comparing operating efficiency across program sites; b) conclusions from societal cost-effectiveness analyses may depend on the level of output at which the programs are evaluated; c) cost projections could be inaccurate if they do not take into account the decrease in average cost that occurs as output expands; and d) gains might be possible if similar programs with limited output potential are integrated, perhaps through cost sharing.

Monopolistic competition and non-neighboring-goods

This paper studies price games played by a continuum of differentiated producers who face demands generated by additively separable preferences exhibiting a non-neighboring goods property. The examples of exact equilibria show that an asymmetric Chamberlian outcome is compatible with nonzero profits for nonmarginal firms and also with constant average costs, contrary to long sustained views. The paper tries also to short out the structure behind this class of examples and identify as general features the presence of nonperfectly elastic demands facing individual firms and the existence of an approximate Chamberlinian equilibrium.

Nonzero-sum stochastic games with unbounded costs: Discounted and average cost cases

We treat non-cooperative stochastic games with countable state space and with finitely many players each having finitely many moves available in a given state. As a function of the current state and move vector, each player incurs a nonnegative cost. Assumptions are given for the expected discounted cost game to have a Nash equilibrium randomized stationary strategy. These conditions hold for bounded costs, thereby generalizing Parthasarathy (1973) and Federgruen (1978). Assumptions are given for the long-run average expected cost game to have a Nash equilibrium randomized stationary strategy, under which each player has constant average cost. A flow control example illustrates the results. This paper complements the treatment of the zero-sum case in Sennott (1993a).

Average-case analysis of unification algorithms

Unification in first-order languages is a central operation in symbolic computation and logic programming. Many unification algorithms have been proposed in the past; however, there is no consensus on which algorithm is the best to use in practice. While Paterson and Wegman's linear unification algorithm (1978) has the lowest time complexity in the worst case, it requires an important overhead to be implemented. This is true also, although less importantly, for Martelli and Montanari's algorithm (Martelli and Montanari 1982), and Robinson's algorithm (Robinson 1971), is finally retained in many applications despite its exponential worst-case time complexity. In this paper, we present unification algorithms in a uniform way and provide average-case complexity theoretic arguments. We estimate the number of unifiable pairs of trees. We analyse the different reasons for failure and get asymptotical and numerical evaluations. We then extend the previous results of Dershowitz and Lindenstrauss (1989) to these families of trees and show that a slight modification of Herbrand-Robinson's algorithm has a constant average cost on random pairs of trees. On the other hand, we show that various variants of Martelli and Montanari's algorithm all have a linear average cost on random pairs of trees. The reason is that failures by clash are not sufficient to lead to a constant average cost; an efficient occur check, i.e. without a complete traversal of subterms, is necessary. In the last section, we present a combinatorial extension of the problem for terms formed over a countable set of variables, and extend to this framework the results on the probability of the occur-check.

The effect of scale on cost projections for a primary health care program in a developing country

Accurate estimation of the recurrent costs of primary health care (PHC) activities is essential in light of the need for governments to assess whether and how these costs can be financed. This paper argues that expansion of the PHC activities will result in diseconomies of scale that are not captured by constant average cost projections of recurrent costs. An alternative estimation method which captures the effect of rising average unit costs is proposed with application of this method to data from the Republic of Niger. Results of the analysis show that the ‘ r-coefficient’ (ratio of investment to recurrent costs) for PHC activities can double and costs can be 3 times larger after 12 years.

Two Approaches to Projecting the Effect of Scale on the Cost of a Primary Health Care Program in a Developing Country : The Case of Niger

Abstract:The reliability of cost estimates can be significantly improved by recognizing and taking account of the phenomenon of eventually rising average costs. This article develops in some detail an example of cost projection in which are contrasted the simple approach using constant average cost with an approach which permits average cost to be pulled upward by an increasing marginal cost of program output. This is done in the context of the primary health care program of the Republic of Niger. Ref., tab.

Optimal Pricing to Retard Entry

In analogy to the notion of delayed gratification, economists have long been aware that profit maximization entails taking account of the entire planning horizon with a mind to balance immediate profits against long term profits. As applied to the oligopolist, Bain (1949) noted that the threat of competition might cause established firms to sacrifice current profit in order to preclude entry and the concomitant competition. However, in defining the limit price as the highest price the established firms can set without inducing entry, it is clearly revealed that Bain viewed entry as a deterministic event. The first probabilistic approaches to the entry issue were suggested by Williamson (1963) and Stigler (1968) where it was noted that the probability of entry is an increasing function of the product price and that retarding rather than precluding entry is associated with the profit maximizing strategy. More recently, Kamien and Schwartz (1971), Baron (1973), Deshmukh and Chikte (1976), and Deshmukh and Winston (1979) have treated models with probabilistic entry. In the model presented here the industry is composed of (nearly) identical firms selling the same product and experiencing the same constant average cost of production, with industry demand divided amongst the established firms. A product price must be selected at each instant of time during the time horizon. Entry occurs according to a Poisson process with the arrival rate at any given point in time an increasing function of the product price at that time; thus, any number of firms can enter during the time horizon. The profit rate is a function of both the current product price and the current industry size. The crucial feature of this model as well as in those cited above is the fact that there is a dominant firm or price leader or, equivalently, the established firms (industry) act collectively as a cartel to maximize industry profits. Competition appears not within the industry but rather with potential entrants. The problem is to find the prices, termed optimal, that maximize the expected discounted value of the price leader's profits over the time horizon as a function of the industry size (which increases with the passage of time). Our model is nearly that of Deshmukh and Chitke (1976) and Deshmukh and Winston (1979). The fundamental difference between our model and Baron's discrete time model is that there the immediate profit is a function of the product price only if there is no entry during the period. The basic model is presented in Section 2, whereas the fundamental result, one not found elsewhere in the literature, regarding the nature of the optimal price as a function of the industry size is presented in Section 3. There we demonstrate that the optimal price increases with the number of firms in the industry and in the limit converges to the monopolistic price. That is, in the presence of a price leader, a decrease in industry concentration leads to an increase in the product price rather than to a more competitive price. Of course, this result depends upon the price leadership being maintained even as the industry grows. (See Telser (1972, Chapter 5) for a discussion of the problems associated with cartel maintenance.) When we allow the entry rate to be a decreasing function of the industry size as well as the price, we can show only that the optimal price converges to the

On the Auction Mechanism and Its Incentive Compatibility

In a recent paper, Vernon L. Smith (1977) claims that the for public goods is incentive compatible. The mechanism is indeed an ingenious approach to an especially intractable problem and undloubtedly will inspire further creative thought. When applied as a(l dynaic, inultiround process, however, it provides no assurance that a Pareto-optimal Nash equilibrium will be reached. This is so because participants can maximize personal expected material gains by pursuing deceptive strategies. While the mechanism possesses a number of desirable properties, incentive compatibility is not one of them. Suppose that a joint decision is to be made about expenditure on a public good of variable size (X) producible at constant average cost (q). To facilitate such a decision, the auction mechanism offers a negotiating procedure and a stopping rule. The negotiation proceeds as follows. A collective-good intermediary requests each agent to submit the pair (bi,Xi) where hi is the share of q offered by the ith participant, i = 1, I, and Xi is a project size proposed by the indexed agent. The intermediary computes Bi liibj and X Ik=IXk/I and transmits the results to all participants. The pair (q Bi,X) constitutes a counterproposal to the ith agent. The negotiations continue until each i signals consent by submitting (bi = q Bi,Xi = X) or until a prearranged number of proposals and counterproposals have taken place without attaining unanimous consent. In the latter event the project is effectively rejected at least until its reappearance, if' ever, on the agenda.

Pitfalls in the Analysis of Public Goods

1. Professor Buchanan hopes to illuminate the problem of public good provision by a simplified, idealized example of a TV relay on an island. I cannot agree that this ideal-type situation, or one closely resembling it captures what Samuelson initially had in mind in his reference to TV signals as an application of his theory of public goods because Buchanan's constantcost postulate assumes away the initial-indivisibility, increasing-returns aspects that I consider intrinsically involved in TV and related public utility problems. Nevertheless, Buchanan's example is a special case that my papers have repeatedly analyzed. By commenting on his analysis, I can hope to bring out the complexities of the problem. 2. Given the constant average cost (in an opportunity as well as dollar sense) of his TV programming, and having simplified his example further by assuming that every man has constant marginal utility of his private good, we can summarize all the information of Buchanan's example by the shapes of the marginal-utility curve of the public good to each man.' Each man knows this function for himself. But only God knows them for all men. Buchanan does not; I do not; the government does not; monopolists and competitors do not.