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Economic Capacity Utilization and Productivity Measurement for Multi-product firms with multiple quasi-fixed inputs

  • Ernst R. Berndt
  • Melvyn A. Fuss
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    In this paper we develop measures of economic capacity output and economic capacity utilization for firms producing multiple outputs and having one or .ore quasi-fixed inputs. Although we produce an impossibility theorem showing that based only on the assumption of cost minimization, the concept of capacity output is undefined whenever the number of outputs I exceeds the number of fixed inputs M, we are able to provide alternative constructive procedures for defining capacity output whenever I [is less than] M. We also propose a number of additional primal and dual measures of utilization of the variable and fixed inputs, including a multi-fixed input analog to Tobin's q. We relate these alternative utilization measures to one another, and show that unambiguous inequality relationships among them (relative to unity) can typically be specified a priori only under rather restrictive assumptions. We show that unless restrictive assumptions are made. the multi-fixed input analogs to Tobin's q have little informational content regarding incentives for net investment of any specific fixed input. Finally, we demonstrate the usefulness of the alternative utilization measures by showing how they can be incorporated to adjust traditional measures of multi factor productivity growth for variations in short-run utilization.

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    File URL: http://www.nber.org/papers/w2932.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2932.

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    Date of creation: Apr 1989
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    Handle: RePEc:nbr:nberwo:2932
    Note: PR
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    1. Catherine J. Morrison, 1985. "Productivity Measurement with Nonstatic Expectations and Varying Capacity Utilization: An Integrated Approach," NBER Working Papers 1561, National Bureau of Economic Research, Inc.
    2. Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-74, May.
    3. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-87, May.
    4. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers 49, Cowles Foundation for Research in Economics, Yale University.
    5. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
    6. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    7. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Melvyn A. Fuss & Leonard Waverman, 1986. "The Extent and Sources of Cost and Efficiency Differences Between U.S. and Japanese Automobile Producers," NBER Working Papers 1849, National Bureau of Economic Research, Inc.
    9. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
    10. Hulten, Charles R., 1986. "Productivity change, capacity utilization, and the sources of efficiency growth," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 31-50.
    11. Slade, Margaret E., 1986. "Total-factor-productivity measurement when equilibrium is temporary : A Monte Carlo assessment," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 75-95.
    12. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
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