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- Title
Economies of Scale in Multi-product Firms: an Empirical Analysis.
- Authors
Kim, H. Youn
- Abstract
This paper presents new evidence on scale economies in multi-product firms. Previous studies are limited in view of recent advances in the theory of the multi-product firm. The water utility is chosen here as a multi-product firm providing multiple services to various classes of customers with spatial variation. A translog multi-product cost function is estimated, based on duality between transformation and cost functions. The paper analyses overall as well as product-specific scale economies. It also discusses ray average cost curves and derives the M locus, which provides useful information on scope economies and the cost-minimizing number of firms. <BR> This study represents a complete research effort aimed at estimating scale economies for the multi-product firm as applied to the water supply industry. The water supply utility has been viewed as a multi-product firm offering multiple services to various classes of customers with spatial variation. Such a view is valid when one examines the outputs of a typical water supply utility, supplying water to many different types of market (residential, commercial, industrial), each of which has unique economic characteristics. The approach taken here is based on the recent research on the multi-product firm by Baumol, Panzar and Willig (1982), which allows for a broader analysis of scale economies in relation to scope economies as well as the cost-minimizing number of firms.
- Subjects
ECONOMIES of scale; MULTIPRODUCT firms; BUSINESS finance; COMMERCIAL products; WATER supply; COST effectiveness
- Publication
Economica, 1987, Vol 54, Issue 214, p185
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2554390