Decompositions of Profitability Change using Cost Functions
AbstractProfitability at a period of time is defined as the value of outputs produced by a production unit divided by the corresponding cost. Using some earlier work by Oâ€™Donnell, the paper provides a decomposition of profitability growth over two periods into various explanatory factors. The explanatory factors are: the change in the production unitâ€™s cost efficiency, an index of output price growth, returns to scale, technical progress and an index of input price growth. If output prices for the production unit are not available, the paper suggests that marginal costs could be used as prices to weight outputs in each period. Using marginal or average costs to weight outputs leads to a methodology for evaluating the productivity performance of nonmarket production units that is similar to the methodology suggested in the Atkinson report.
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Bibliographic InfoPaper provided by Vancouver School of Economics in its series Economics working papers with number erwin_diewert-2010-16.
Length: 26 pages
Date of creation: 12 May 2010
Date of revision: 13 Jul 2010
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Web page: http://www.economics.ubc.ca/
Measurement of output; input and productivity; nonmarket sector; cost functions; duality theory; marginal cost prices; technical progress; returns to;
Other versions of this item:
- W. Erwin Diewert, 2010. "Decompositions of Profitability Change using Cost Functions," CEPA Working Papers Series WP092010, School of Economics, University of Queensland, Australia.
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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- C.J. O'Donnell, 2008. "An aggregate quantity-price framework for measuring and Decomposing productivity and profitability change," CEPA Working Papers Series WP072008, School of Economics, University of Queensland, Australia.
- O'Donnell, Christopher J., 2009. "Measuring And Decomposing Agricultural Productivity And Profitability Change," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 47625, Australian Agricultural and Resource Economics Society.
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