Long-run Cost Function Research Articles

Economic Estimation of the Long-Run Cost Function and Economies of Scale for the Date Crop in the Holy Governorate of Karbala-Al-Husseiniyah District for the Productive Season (2021)

Economic Estimation of the Long-Run Cost Function and Economies of Scale for the Date Crop in the Holy Governorate of Karbala-Al-Husseiniyah District for the Productive Season (2021)

Estimating the Long-Run Cost Function of the Potato Crop in Al-Nasr and Al-Salam Sub-District for the Fall Season 2021

The research aims to estimate the long-term cost function of the potato crop for the Fall harvest (2021), and calculate the optimal size of production, the optimal area, and the output supply function, The research relied on the cross-sectional data obtained by the researcher through the personal interview, and it included 181 farms out of 599 farms, which constitute 30.2% of the total farms in Al-Nasr and Al-Salam district, according to the statistics of the study area division, The research used Eviews 10 and Excel software to estimate the long-run cost function and represent its economic derivatives, The results showed that the optimal cost-reducing production volume is 5663.33 kg/dunum, and the average actual production volume was 5484.80 kg/dunum, The optimal area of the field is 24.35 dunums, while the average actual area was 4.06 dunums, The study showed that the lowest price that a farmer can offer his crop is 195.642 thousand dinars / ton, The results also showed that more than half of the sample farms operate according to economies of scale, The study recommends the necessity of cultivating at optimum sizes and taking advantage of economies of scale to reduce waste in costs to the least possible.

AN ECONOMIC RESEARCH OF BROILER PROJECTS FOR SOME PROVINCES IN THE MIDDLE OF IRAQ IN 2019

This research was aimed to estimate the long-run cost and supply functions and to calculate the optimum profit-maximizing level of production, optimum capacity for broiler projects. The preliminary data were obtained by questionnaires that were distributed to project owners in Qadisiyah, Babil and Wasit governorates. A total of 80 projects amounted for 15% of the total projects in these governorates were included. The results indicated that the optimal profit-maximizing and actual production were 25,337, 34,737, and 21.25 tons respectively. The optimum production capacity was 9.9 thousand birds, while the actual capacity was 8.3 thousand chicken The cost elasticities were 0.936, 1.0 and 1.23 at the actual, optimal and profit maximizing production, respectively. The supply function had low elasticity indicating that the producers face great difficulty in controlling production in case of price changes. From these results, it can be concluded that government support is required for productive inputs, facilitating loans, preventing poultry importing, and adoption of strategic policy for the agricultural sector in general and poultry production in particular.

The technology and cost structure of a natural gas pipeline: Insights for costs and rate-of-return regulation

This note details a complete microeconomic characterization of the physical relationships between input use and the level of output of a simple point-to-point gas pipeline system and uses it to contribute to the public policy discussions pertaining to the economic regulation of natural gas pipelines. We show that the engineering equations governing the design and operations of that infrastructure can be approximated by a single production equation of the Cobb-Douglas type. We use that result to inform three public policy debates. First, we prove that the long-run cost function of the infrastructure formally verifies the condition for a natural monopoly, thereby justifying the need of regulatory intervention in that industry. Second, we examine the conditions for cost-recovery in the short-run and contribute to the emerging European discussions on the implementation of short-run marginal cost pricing on interconnector pipelines. Lastly, we analyze the performance of rate-of-return regulation in that industry and inform the regulatory policy debates on the selection of an appropriate authorized rate of return. We highlight that, contrary to popular belief, the socially desirable rate of return can be larger than the market price of capital for that industry.

A Model-Based Reinforcement Learning Algorithm for Routing in Energy Harvesting Mobile Ad-Hoc Networks

Dynamic topology, lack of a fixed infrastructure and limited energy in mobile ad-hoc networks (MANETs) give rise to a challenging operational environment. MANET routing protocols should consider dynamic network changes (e.g., link qualities and nodes residual energy) in such circumstances and be able to adapt to these changes to efficiently handle the traffic flows. In this paper, we assume an energy harvesting MANET in which the nodes have recharging capability and thus their residual energy level is randomly changing with time. We present a bi-objective intelligent routing protocol that aims at reducing an expected long-run cost function composed of end-to-end delay and the path energy cost. We formulate the routing problem as a Markov decision process which captures both the link state dynamics due to node mobility and energy state dynamics due to nodes rechargeable energy sources. We propose a multi-agent reinforcement learning-based algorithm to approximate the optimal routing policy in the absence of a priori knowledge of the system statistics. The proposed algorithm is built using the principles of model-based RL. More specifically, we model each node’s cost function by deriving an expression for the expected value of end-to-end costs. Also the transition probabilities are estimated online using a tabular maximum likelihood method. Simulation results show that our model-based scheme outperforms its model-free counterpart and operates closely to standard value-iteration which assumes perfect statistics.

Simulation–optimization approach for a continuous-review, base-stock inventory model with general compound demands, random lead times, and lost sales

A continuous-review, base-stock inventory model considering lost sales is proposed for general compound demands and random lead times. This model is a generalized form of the ( S, d) policy, which has already been shown to be the best modified base-stock policy (MBSP) for Poisson demand and fixed lead times. In this paper, customers’ inter-arrival times, demand sizes, and lead times are extended in a probabilistic situation with free distributions. Then, a hybrid simulation–optimization approach is developed to handle these generalized conditions. This approach uses design of experiments, a simulation model, and regression analysis to obtain the long-run cost function of the system under this extended MBSP. The optimal settings of this policy are achieved using a mathematical optimization model. Employing a simulation model, a cost function, and mathematical models makes this approach applicable for finding the optimal settings even in the presence of realistic restrictions and uncertainties. Moreover, a simulation-based procedure is introduced to find the optimal stock level for the traditional base-stock policy. The applicability of the proposed approach is illustrated through a real-world case study. Finally, a sensitivity analysis is applied using a series of benchmark instances, and some robustness properties are shown.

Random Policy for an Unreliable Server System With Delaying Repair and Setup Time Under Bernoulli Vacation Schedule

Abstract This paper deals with an M/G/1 queuing system with server setup and a Bernoulli vacation schedule, in which an unreliable server applies a random N-policy. The server may break down at any time, and the service channel will fail for the duration of the breakdown. When units in the queue are exhaustively served, the server will become idle until the queue size grows to meet a random threshold N(≥1). As soon as the queue size reaches N, the server will immediately begin to serve the waiting units. Upon the service completion of each unit, the server may take a vacation or may remain in the system to serve the next unit, if any. This study derives the queue size distribution during a busy period initiation epoch and a departure epoch, respectively. We also give the analytic expression for the distribution of the delay busy period, which includes breakdown periods and actual busy periods. Furthermore, numerical examples of the long-run cost functions for the random N-policy and the classical N-policy are investigated.

Parametric Characterization of an Industrial Production Technology: The Canadian Sawmilling Industry’s Case

The goal of this study was to analyze a long-run technological progress in the Canadian sawmilling industry. Technological progress was considered as any kind of shift in the production technology estimated by total factor productivity growth (TFPG) and other parameters that complemented it. Out of six econometric models that were tested for efficacy in describing the technology, an unrestricted translog functional-form of a long-run total cost function described the technology sufficiently. The industry’s TFPG averaged 2.3% per year over the study period. Factor substitution elasticities implied that it was easy for the industry to substitute labor for capital and energy. The industry recorded increasing returns to scale and economies of scale; and technological progress was biased toward capital-using, energy-saving, and Hicks-neutral for labor and material. The multiple benefits that society derives from TFPG include: being one of the engines of economic growth, mitigation of natural capital depletion, minimization of wasteful-use of factors of production, mitigation of the adverse effects of inflation, boosting economic savings, freeing input factors to be reallocated to production of other goods and services, improvements in industrial competitiveness in the marketplace, and revealing possibilities to raise wage rates. Implications of the findings for industrial policymaking are discussed.

Estimation of a Long-Run Cost Function for Bananas Cultivation in Jordan

This study aimed at investigating bananas production in Jordan in terms of estimating the long run cost function and deriving the associated parameters. A field survey was carried out to collect the primary data in Ghore Area of Jordan (Jordan Valley). Simple random and purposive sampling procedure was followed in this study. Interviews were carried out and a questionnaire was constructed to collect the needed information from 66 sampled farmers. The findings of the study showed that both the long run marginal costs and long run average costs were estimated to be 0.05 and 0.13 JDs/kg of bananas respectively. The optimum size of production and the production level with maximum profit for the sampled farms were 8695.65 kgs 13043 kgs respectively. Both the optimum size of production and the production level with maximum profit of the sampled farms were much higher of the average production of these farms by 2260 and 3997 JDs respectively.

KONSTRUKCE NÁKLADOVÝCH FUNKCÍ V PODMÍNKÁCH RIZIKA A NEURČITOSTI

In economics, a cost curve is a graph of the costs of production as a function of total quantity produced. In a free market economy, these curves are used by the entities to find the optimal point of production, where they make the highest profits. There exist several different types of cost curves, while each of them is relevant to a different area of economics. In the article, authors are focused on solution of cost-functions modelling, both short-run cost function and long-run cost function under circumstances of risk and uncertainty. Considerations about factors of risk and uncertainty are based on an irrefutable fact that companies are not separate entities taken out of surrounding environment; entities operate in global world where many random factors are influencing the processes in companies while the number of these random factors is ad infinitum. The fact that estimation of cost functions' parameters are realized from past data is the basis of the considerations about planning of future scope of production based on these functions. Especially for the long-run cost functions it is impossible to leave out all the random influences. Their quantification is derived from aposteriori probabilistic approach according to Bayesian Theorem.

Industrial electricity demand and energy efficiency policy: the case of the Swedish mining industry

The purpose of this paper is to analyze long-run electricity demand behavior in the Swedish mining industry with special emphasis on the impact of energy prices and private research and development (R & D) on electricity use. Methodologically, we estimate a generalized Leontief variable cost function using a panel data set of nine mining operations over the time period 1990–2005. Since the lower boundary of a set of short-run cost functions confines the long-run cost function, we can compute the long-run own- and cross-price elasticities of electricity demand. The empirical results indicate that long-run electricity demand in the mining industry is sensitive to changes in the own price, and already in a baseline setting Swedish mining companies tend to allocate significant efforts towards improving energy efficiency, in part through private R & D. From a policy perspective, the results imply that taxes (and tax exemptions) on electricity can have significant long-run impacts on electricity use. Moreover, future evaluations of so-called voluntary energy efficiency programs must increasingly recognize the already existing incentives to reduce energy use in energy-intensive industries.

The Use of Cost Functions for the Teaching of Natural Monopoly in Intermediate Microeconomics

This study proposes a logarithmic long-run cost function and its relevant short-run cost lines which can be used to teach second-year or upper-level undergraduates the topic of natural monopoly in microeconomics courses. The long-run and short-run relationships among total cost, average cost, and marginal cost can be both mathematically and graphically illustrated. The Mean Value Theorem can be used to verify the condition of positive fixed costs. This study may make a contribution to intermediate-level microeconomics education by demonstrating how to combine basic calculus with simple graphs to facilitate the teaching of cost properties of natural monopoly. Some undergraduates' views on this method were collected and analyzed. The findings from the data analysis show that the method was generally well received by most of respondents in this study.

Reexamination of “Combining an alternative multi-delivery policy into economic production lot size problem with partial rework” Using an Alternative Approach

A conventional approach for solving an economic production quantity (EPQ) model with multi-delivery policy andquality assurance is to use mathematical modeling for deriving the system cost function and to employ differentialcalculus for proving convexity of the cost function before determining the optimal operating policy. This paperpresents a simplified solution procedure to reexamine a specific EPQ model [1] and demonstrates that both, theoptimal manufacturing lot size and the long-run cost function can be derived without derivatives. The proposedapproach may enable practitioners—with little knowledge of calculus—to understand such a real life vendor-buyerintegrated system with ease.

Economies of scale and scope in the Danish hospital sector prior to radical restructuring plans

ObjectiveThe Danish hospital sector faces a significant rebuilding program driven by recent regional reform and guidelines for acute admission hospitals. Within the next 5–10 years, the number of public hospitals offering acute admission will be reduced from 35 to approximately 20 larger hospitals. As the administrative data may be biased during the middle of a restructuring process our objective was to analyze whether the configuration of Danish public hospitals was subject to economies of scale and scope prior to the restructuring plans. MethodsWe estimated a quadratic cost function using panel data on the total costs for somatic treatment, casemix adjusted DRG-production values, and other cost drivers for the three years before the 2007 reforms. A short-run cost function was used to derive estimates of a long-run cost function by applying the envelope condition. Next, we estimated economies of scale and scope. ResultsWe identified moderate-to-significant economies of scale and scope. This indicates that the Danish hospital sector was characterized by unexploited gains from consolidation. ConclusionsOur results suggest that the proposed plans have the potential to result in hospitals that are more efficient. However, post-restructuring studies elsewhere show that the strategy of horizontal integration has failed.

Joint determination of lot-size and shipment policy for a vendor-buyer system with rework and an improving delivery plan

This paper studies a vendor-buyer integrated system with rework and an improving delivery policy for lowering both vendor and buyer’s stock holding costs. The objective is to derive the optimal production lot size and number of deliveries that minimizes total costs for the proposed vendor-buyer integrated system. This study extends the work of Chiu et al. (2011) by incorporating an improving n+1 shipment policy into their model, with the purpose of reducing both vendor and buyer’s stock holding costs. Under such an enhancing policy, one extra upfront delivery of finished items is distributed to buyer for satisfying product demand during supplier’s production and rework times. Then, fixed quantity (n) installments of finished items are delivered to customer at the end of rework. Mathematical modeling along with Hessian matrix equations is employed to derive and prove convexity of the long-run cost function. Closed-form solution in terms of lot size and number of deliveries is obtained. A numerical example is provided to show its practical usage and demonstrate significant reduction in stock holding cost. Key words: Production lot size, vendor-buyer system, multi-deliveries, rework.

Long-run Cost Functions for Electricity Transmission

Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piecewise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion. doi: 10.5547/ISSN0195-6574-EJ-Vol33-No1-6

International Airports: Economies of Scale and Marginal Costs

Regarding some regulation fields, such as optimal investments and pricing policies, marginal cost estimations for infrastructure-intensive transport services is always a challenging task. The lack of comparable data among airports is one of the causes which could explain the relative scarcity of this literature in the past. In this paper, the returns to scale and marginal costs are estimated using single-and multi-product translog specifications of a long-run cost function. A pooled database of financial data on 41 airports across Europe, North America, Asia, and Australia for the period 1991-2005 was used. Significant economies of scale and little degree of technological progress are found using Work Load Units (WLU) and Air Traffic Movements (ATM) as output measures. Additionally, individual long-run marginal cost estimates are provided for each output measure, and for every airport under study.

The econometric estimation of airports’ cost function

The econometric estimation of cost functions has been proposed in the literature as a suitable approach in order to obtain estimations of marginal costs, efficiency levels and scale elasticities for transport industries. However, regarding the airport industry, no significant attention has been paid in developing an airport-specific estimation methodology rather than adapting the procedures applied to other industries. The lack of comparable airport data is one of the causes which could explain the scarcity of this literature in the past, as well as the use of very limited approaches to explain airport technology. This paper tries to overcome these limitations by developing an airport-specific methodology to estimate a multi-output long-run cost function using an unbalanced pooled database on 161 airports worldwide. The specification of hedonically-adjusted aircraft operations, domestic and international passengers, cargo and commercial revenues in the output vector, as well as the calculation of input prices are discussed. Both technical and allocative inefficiencies are specified in the model using a Stochastic Frontier method that has been estimated through Bayesian Inference and Markov Chain Monte Carlo methods.

Application of the theory of decision making under risk and uncertainty at modelling of costs

The costs functions are mentioned mostly in the relation to the Break-even Analysis where they are presented in the linear form. But there exist several different types and forms of cost functions. Fist of all, it is necessary to distinguish between the short-run and long-run cost function that are both very important tools of the managerial decision making even if each one is used on a different level of management. Also several methods of estimation of the cost function's parameters are elaborated in the literature. But all these methods are based on the past data taken from the financial accounting while the financial accounting is not able to separate the fixed and variable costs and it is also strongly adjusted to taxation in the many companies. As a tool of the managerial decision making support, the cost functions should provide a vision to the future where many factors of risk and uncertainty influence economic results. Consequently, these random factors should be considered in the construction of cost functions, especially in the long-run. In order to quantify the influences of these risks and uncertainties, the authors submit the application of the Bayesian Theorem.

Pricing, capacity and long-run cost functions for first-best and second-best network problems

This paper considers the use of ‘long-run cost functions’ for congested networks in solving second-best network problems, in which capacity and tolls are instruments. We derive analytical results both for general cost and demand functions and for specific functional forms, namely Bureau of Public Roads cost functions and constant-elasticity demand functions. The latter are also used in a numerical simulation model. We consider second-best cases where only a sub-set of links in a network is subject to tolling and/or capacity choice, and cases with and without a self-financing constraint imposed. We will demonstrate that, under certain assumptions, second-best long-run cost (or actually: generalized price) functions can be derived for most of the cases of interest, which can be used in an applied network model as a substitute for the conventional short-run user cost functions. Doing so reduces the dimensionality of the problem and should therefore be helpful in speeding up procedures for finding second-best optima.