Translog Cost Functions: An Application for Mexican Manufacturing
AbstractWe use translog cost functions to estimate own-price and substitution elasticities of input demands, economies of scale and average costs in Mexican manufacturing. Data from the Mexican Annual Industrial Survey is used for 1996, 2000 and 2003. We show that a model that allows for nonhomotheticity and nonunitary elasticities of substitution is appropriate to represent the production structure. Allen-Uzawa elasticities indicate the existence of substitution possibilities amongst inputs. The demand for electricity is essentially unitary elastic. All cross-price elasticities are less than one. Both scale economies and average costs diminish as the size of activity class increases. Economies of scale increased for any level of output. The differences in average costs between small and large activity classes were reduced and some disparities prevail in a number of manufacturing groups.
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Bibliographic InfoPaper provided by Banco de México in its series Working Papers with number 2007-08.
Date of creation: Apr 2007
Date of revision:
Simultaneous equation models; Translog cost function; Manufacturing;
Find related papers by JEL classification:
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
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