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Returns to scale with a Cobb-Douglas production function for a small italian mechanical firm

Author

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  • Osti, Davide

Abstract

with this piece of evidence, I try to she light upon the e ects of xed and variable costs on revenues for a rm operating in the sector of leathing and milling in the neighbourhood of Bologna, on the Tus- can - Emilian Appennines, through the estimation of a linear bivariate simultaneous equation model where variable and xed costs explain revenues; with a sample of eleven years of annual data, I nd that a marginal increase in variable costs of 1 euro, keeping the xed costs constants, leads to higher revenues up to 1.155 euro; I further estimate a cobb douglas production function, in order to nd out whether the returns to scale are increasing, constant or decreasing; I nd support for the hypothesis of slightly increasing returns to scale with the base- line cobb douglas transformed in logarithms (with capital and labour only), while multiplicatively including an additional regressor for raw materials purchases, I nd evidence for slightly decreasing returns to scale

Suggested Citation

  • Osti, Davide, 2021. "Returns to scale with a Cobb-Douglas production function for a small italian mechanical firm," MPRA Paper 115629, University Library of Munich, Germany, revised 02 Dec 2022.
    • Handle: RePEc:pra:mprapa:115629
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    More about this item

    Keywords

    rm behaviour; production functions; returns to scale; cobb douglas; stochastic frontier model; non linear least squares; production sets; convex cones;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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