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Unformatted text preview: Noting that the average smelter’s capacity is 133.02 tons implies that:
This yields the average primary AL smelter’s cost function:
Estimating cost model by CMP: We have seen how to derive a firm’s cost function by solving its long/short run CMP. For
example, suppose a firm produces output according to the production function:
Denoting the price of labor and capital by
is: , ) , respectively you can show that the cost of producing an arbitrary target ( ) Please review the long and short run CMP chapters for additional examples.
Estimating cost model through regression analysis: As we saw in the HBS case, The Prestige Telephone Company we can
“estimate” a company’s cost function by regression analysis. In that case, we recognized that power and operations
expenses encompassed fixed and variable cost components. To extract the fixed cost and estimate the variable cost
function, we have to specify an economic cost model; specifically, we have to specify the functional form of the total
variable cost function. For example, the “economic” power cost model is:
We also recognize that the cost of...
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This document was uploaded on 01/19/2014.
- Fall '14
- The Land