Technical Report
 

Estimation of cost functions of northwest beef feedlots from expected marginal revenue observations

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  • An integration procedure for estimating cost functions from cross-sectional firm data is developed. The procedure is based upon the hypothesis that firms equate expected marginal revenue to marginal costs in deciding how much output to produce. Since the total cost function is the integral of the marginal cost function plus some arbitrary constant considered the total fixed cost, and by hypothesis the expected marginal revenue is equal to marginal cost, then the total cost function is the integral of the expected marginal revenue plus some constant. A procedure is developed for obtaining the expected marginal revenues from a cross-section of beef feedlot operators. An estimate of the total cost function for a range of beef output is obtained by discrete summation. The estimated total cost function is statistically tested against values of total costs obtained from the ordinary cost equation. Implications for further research are outlined.
  • Published February 1973. Facts and recommendations in this publication may no longer be valid. Please look for up-to-date information in the OSU Extension Catalog: http://extension.oregonstate.edu/catalog
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