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

Subhash Ray

No 2013-09, Working papers from University of Connecticut, Department of Economics

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.

Keywords: Efficient output; Most Productive Scale Size; Data Envelopment Analysis (search for similar items in EconPapers)
JEL-codes: C61 D24 L25 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-03
New Economics Papers: this item is included in nep-eff
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Journal Article: Nonparametric measures of scale economies and capacity utilization: An application to U.S. manufacturing (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2013-09

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