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SCALE ECONOMIES IN MULTIPRODUCT FIRMS
Author(s) -
Shaffeer Sherrill
Publication year - 1984
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1984.tb00524.x
Subject(s) - subadditivity , economies of scale , economics , natural monopoly , monopoly , returns to scale , argument (complex analysis) , diseconomies of scale , microeconomics , economies of agglomeration , function (biology) , production function , scale (ratio) , production (economics) , economy , mathematics , biochemistry , chemistry , physics , discrete mathematics , quantum mechanics , evolutionary biology , biology
As normally employed, multioutput cost functions impose a bias against a finding of economies of scale, because a firm's optimal expansion path generally does not entail constant proportions over the various outputs. This bias can be overcome using a cost function defined in terms of a scalar aggregate output. An empirical example using New York commercial banks bears out the argument. As a sidelight, it is also argued that the traditional concept of scale economies is appropriate for policy purposes even when it conflicts with the more recently developed condition of natural monopoly (subadditivity of the cost function).