Estimating cost model through regression analysis as

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 output 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...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online