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Nonparametric Measures of Scale Economies and Capacity Utilization: An Application to U.S. Manufacturing

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  • Subhash C. Ray

    (University of Connecticut)

Abstract

An economic measure of scale efficiency is the ratio of the minimum average cost to the average cost at the actual output level of a firm. It is easily measured by the ratio of the total cost of this output under the constant and variable returns to scale assumptions. This procedure does not identify the output level where the average cost reaches a minimum. This paper proposes a nonparametric method of measuring this output level using DEA. The relation between this efficient production scale, the short run physical capacity output, and the most productive scale size (MPSS) is also discussed. An empirical application using state level data from U.S. manufacturing is used to illustrate the procedure.

Suggested Citation

  • Subhash C. Ray, 2013. "Nonparametric Measures of Scale Economies and Capacity Utilization: An Application to U.S. Manufacturing," Working papers 2013-09, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2013-09
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    References listed on IDEAS

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    1. Coelli, Tim & Grifell-Tatje, Emili & Perelman, Sergio, 2002. "Capacity utilisation and profitability: A decomposition of short-run profit efficiency," International Journal of Production Economics, Elsevier, vol. 79(3), pages 261-278, October.
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    1. repec:eee:rujoec:v:3:y:2017:i:3:p:240-262 is not listed on IDEAS
    2. repec:eee:eneeco:v:70:y:2018:i:c:p:244-257 is not listed on IDEAS
    3. repec:eee:jomega:v:76:y:2018:i:c:p:112-127 is not listed on IDEAS
    4. repec:eee:enepol:v:116:y:2018:i:c:p:170-181 is not listed on IDEAS
    5. Subhash C. Ray & John Walden & Lei Chen, 2018. "Economic Measures of Capacity Utilization: A Nonparametric Cost Function Analysis," Working papers 2018-02, University of Connecticut, Department of Economics.
    6. Kamel Helali & Maha Kalai & Thouraya Boujelbene, 2016. "Short-run decomposition of profit efficiency and its relationship with the Tunisian manufacturing capacity utilisation," International Journal of Applied Management Science, Inderscience Enterprises Ltd, vol. 8(1), pages 38-51.
    7. Chaudhuri, Kausik & Kumbhakar, Subal C. & Sundaram, Lavanya, 2016. "Estimation of firm performance from a MIMIC model," European Journal of Operational Research, Elsevier, vol. 255(1), pages 298-307.

    More about this item

    Keywords

    Efficient output; Most Productive Scale Size; Data Envelopment Analysis;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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