Microeconomic Modeling And Analysis Of Commodity Chemical Production In A Simple Plant

Arthur S. Gow

New York Economic Review, 2003, vol. 34, issue 1, 3-20

Abstract: A four-input (capital, labor, material and energy) production theory is applied to a representative chemical reaction occurring in a model plant, which captures the general features of large-scale chemical production processes. Engineering model and bridge equations (links between engineering and economic variables) are numerically solved to obtain feasible input combinations for a given production rate. Labor and material flows are fixed for a constant production rate, such that the capital-energy isoquant/isocost map gives the technically efficient region and (cost minimizing) optimum output expansion path for planned plants (ex ante case). Model plant total capital investment versus plant capacity is in excellent agreement with capital investment costs for actual polymerization plants. Finally, short- and long-run total, average and marginal cost curves exhibit theoretically correct behavior, and an example of static equilibrium analysis of the firm in the chemical product market is presented using short-run cost and postulated product demand and marginal revenue curves.

Date: 2003
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