Economic measures of capacity utilization: A nonparametric short-run cost function analysis.
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| Title: | Economic measures of capacity utilization: A nonparametric short-run cost function analysis. |
|---|---|
| Authors: | Ray, Subhash C.1 (AUTHOR) Subhash.Ray@Uconn.edu, Walden, John2 (AUTHOR) John.Walden@Noaa.Gov, Chen, Lei3 (AUTHOR) Lei.Chen@jhun.edu.cn |
| Source: | European Journal of Operational Research. Aug2021, Vol. 293 Issue 1, p375-387. 13p. |
| Subjects: | Cost analysis, Mathematical programming, Linear programming, Cost accounting, Nonlinear equations, Vector error-correction models |
| Abstract: | • Capacity can be assessed from cost accounting, engineering, or economics standpoint. • Cost based capacity can be measured from a primal or dual standpoint. • One can use linear programming to determine the capacity output. • The minimum point of the short-run average cost curve determines capacity output. • For multiple outputs one needs to consider the minimum of ray average cost curve. Measures of capacity utilization and capacity output are important metrics for evaluating firm performance. This is true whether capacity is considered from a cost accounting framework, an engineering standpoint, or an economics orientation. Ultimately, the crux of the capacity question is about resources not being used to their fullest extent. In an economics context, understanding where firms are producing on their average cost curve provides information about whether capacity utilization is greater than, less than or equal to unity. In real life, most firms are multi-output, multi-input in nature which makes estimation of capacity utilization and capacity output challenging if a cost based measure is desired. This is further complicated in a short run analysis incorporating multiple outputs and multiple fixed inputs where the relevant concept is the minimum of ray average cost. This paper develops appropriate mathematical programming models for measuring capacity utilization in the short-run for multiple-outputs and multiple fixed inputs. We offer a simple transformation that linearizes the non-linear DEA problem to estimate average, or ray average cost, and to determine capacity utilization and optimal output. The models are empirically tested on data from a number of U.S. electricity producers for the single output case, and a sample of dental practices for the multi-output case. Results show that for both industries, most firms were operating at less than full capacity, and needed to expand output to minimize their average costs. [ABSTRACT FROM AUTHOR] |
| Copyright of European Journal of Operational Research is the property of Elsevier B.V. and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.) | |
| Database: | Engineering Source |
| FullText | Text: Availability: 0 |
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| Header | DbId: egs DbLabel: Engineering Source An: 149266730 AccessLevel: 6 PubType: Academic Journal PubTypeId: academicJournal PreciseRelevancyScore: 0 |
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| Items | – Name: Title Label: Title Group: Ti Data: Economic measures of capacity utilization: A nonparametric short-run cost function analysis. – Name: Author Label: Authors Group: Au Data: <searchLink fieldCode="AR" term="%22Ray%2C+Subhash+C%2E%22">Ray, Subhash C.</searchLink><relatesTo>1</relatesTo> (AUTHOR)<i> Subhash.Ray@Uconn.edu</i><br /><searchLink fieldCode="AR" term="%22Walden%2C+John%22">Walden, John</searchLink><relatesTo>2</relatesTo> (AUTHOR)<i> John.Walden@Noaa.Gov</i><br /><searchLink fieldCode="AR" term="%22Chen%2C+Lei%22">Chen, Lei</searchLink><relatesTo>3</relatesTo> (AUTHOR)<i> Lei.Chen@jhun.edu.cn</i> – Name: TitleSource Label: Source Group: Src Data: <searchLink fieldCode="JN" term="%22European+Journal+of+Operational+Research%22">European Journal of Operational Research</searchLink>. Aug2021, Vol. 293 Issue 1, p375-387. 13p. – Name: Subject Label: Subjects Group: Su Data: <searchLink fieldCode="DE" term="%22Cost+analysis%22">Cost analysis</searchLink><br /><searchLink fieldCode="DE" term="%22Mathematical+programming%22">Mathematical programming</searchLink><br /><searchLink fieldCode="DE" term="%22Linear+programming%22">Linear programming</searchLink><br /><searchLink fieldCode="DE" term="%22Cost+accounting%22">Cost accounting</searchLink><br /><searchLink fieldCode="DE" term="%22Nonlinear+equations%22">Nonlinear equations</searchLink><br /><searchLink fieldCode="DE" term="%22Vector+error-correction+models%22">Vector error-correction models</searchLink> – Name: Abstract Label: Abstract Group: Ab Data: • Capacity can be assessed from cost accounting, engineering, or economics standpoint. • Cost based capacity can be measured from a primal or dual standpoint. • One can use linear programming to determine the capacity output. • The minimum point of the short-run average cost curve determines capacity output. • For multiple outputs one needs to consider the minimum of ray average cost curve. Measures of capacity utilization and capacity output are important metrics for evaluating firm performance. This is true whether capacity is considered from a cost accounting framework, an engineering standpoint, or an economics orientation. Ultimately, the crux of the capacity question is about resources not being used to their fullest extent. In an economics context, understanding where firms are producing on their average cost curve provides information about whether capacity utilization is greater than, less than or equal to unity. In real life, most firms are multi-output, multi-input in nature which makes estimation of capacity utilization and capacity output challenging if a cost based measure is desired. This is further complicated in a short run analysis incorporating multiple outputs and multiple fixed inputs where the relevant concept is the minimum of ray average cost. This paper develops appropriate mathematical programming models for measuring capacity utilization in the short-run for multiple-outputs and multiple fixed inputs. We offer a simple transformation that linearizes the non-linear DEA problem to estimate average, or ray average cost, and to determine capacity utilization and optimal output. The models are empirically tested on data from a number of U.S. electricity producers for the single output case, and a sample of dental practices for the multi-output case. Results show that for both industries, most firms were operating at less than full capacity, and needed to expand output to minimize their average costs. [ABSTRACT FROM AUTHOR] – Name: AbstractSuppliedCopyright Label: Group: Ab Data: <i>Copyright of European Journal of Operational Research is the property of Elsevier B.V. and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract.</i> (Copyright applies to all Abstracts.) |
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| RecordInfo | BibRecord: BibEntity: Identifiers: – Type: doi Value: 10.1016/j.ejor.2020.12.012 Languages: – Code: eng Text: English PhysicalDescription: Pagination: PageCount: 13 StartPage: 375 Subjects: – SubjectFull: Cost analysis Type: general – SubjectFull: Mathematical programming Type: general – SubjectFull: Linear programming Type: general – SubjectFull: Cost accounting Type: general – SubjectFull: Nonlinear equations Type: general – SubjectFull: Vector error-correction models Type: general Titles: – TitleFull: Economic measures of capacity utilization: A nonparametric short-run cost function analysis. Type: main BibRelationships: HasContributorRelationships: – PersonEntity: Name: NameFull: Ray, Subhash C. – PersonEntity: Name: NameFull: Walden, John – PersonEntity: Name: NameFull: Chen, Lei IsPartOfRelationships: – BibEntity: Dates: – D: 16 M: 08 Text: Aug2021 Type: published Y: 2021 Identifiers: – Type: issn-print Value: 03772217 Numbering: – Type: volume Value: 293 – Type: issue Value: 1 Titles: – TitleFull: European Journal of Operational Research Type: main |
| ResultId | 1 |
