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Microeconomic Modeling And Analysis Of Commodity Chemical Production In A Simple Plant

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  • Arthur S. Gow
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    Abstract

    A four-input (capital, labor, material and energy) production theory is applied to a representative chemical reaction occurring in a model plant, which captures the general features of large-scale chemical production processes. Engineering model and bridge equations (links between engineering and economic variables) are numerically solved to obtain feasible input combinations for a given production rate. Labor and material flows are fixed for a constant production rate, such that the capital-energy isoquant/isocost map gives the technically efficient region and (cost minimizing) optimum output expansion path for planned plants (ex ante case). Model plant total capital investment versus plant capacity is in excellent agreement with capital investment costs for actual polymerization plants. Finally, short- and long-run total, average and marginal cost curves exhibit theoretically correct behavior, and an example of static equilibrium analysis of the firm in the chemical product market is presented using short-run cost and postulated product demand and marginal revenue curves.

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    Bibliographic Info

    Article provided by New York State Economics Association (NYSEA) in its journal New York Economic Review.

    Volume (Year): 34 (2003)
    Issue (Month): 1 ()
    Pages: 3-20

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    Handle: RePEc:nye:nyervw:v:34:y:2003:i:1:p:3-20

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    1. Hisnanick, John J. & Kyer, Ben L., 1995. "Assessing a disaggregated energy input : Using confidence intervals around translog elasticity estimates," Energy Economics, Elsevier, vol. 17(2), pages 125-132, April.
    2. Rushdi, Ali Ahmed, 1991. "Economies of scale and factor substitution in electricity supply industry : A case study of south Australia," Energy Economics, Elsevier, vol. 13(3), pages 219-229, July.
    3. Caloghirou, Yannis D. & Mourelatos, Alexi G. & Thompson, Henry, 1997. "Industrial energy substitution during the 1980s in the Greek economy," Energy Economics, Elsevier, vol. 19(4), pages 476-491, October.
    4. Diewert, W. E. & Wales, T. J., 1995. "Flexible functional forms and tests of homogeneous separability," Journal of Econometrics, Elsevier, vol. 67(2), pages 259-302, June.
    5. Konstantinos Giannakas & Kien Tran & Vangelis Tzouvelekas, 2000. "Efficiency, technological change and output growth in Greek olive growing farms: a Box-Cox approach," Applied Economics, Taylor & Francis Journals, vol. 32(7), pages 909-916.
    6. Mahmud, Fakhre & Chishti, Salim, 1990. "The demand for energy in the large-scale manufacturing sector of Pakistan," Energy Economics, Elsevier, vol. 12(4), pages 251-254, October.
    7. Apostolakis, Bobby E., 1990. "Energy--capital substitutability/ complementarity : The dichotomy," Energy Economics, Elsevier, vol. 12(1), pages 48-58, January.
    8. Chang, Kuo-Ping, 1994. "Capital-energy substitution and the multi-level CES production function," Energy Economics, Elsevier, vol. 16(1), pages 22-26, January.
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