Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192332 
Authors: 
Year of Publication: 
2003
Series/Report no.: 
Discussion Papers No. 350
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
Although most production activities involve multiple outputs, econometric models of production or cost functions normally involve only one single homogeneous output. The aim of this paper is to test the hypothesis that a multiproduct specification is superior to a model with a single homogenous product. To do this, we use a Multiproduct Symmetric Generalized McFadden (MSGM) cost function. This functional form is globally concave and flexible in the sense that it provides a second order differentiable approximation of any arbitrary cost function which is twice continuously differentiable and linear homogenous in input prices. In an empirical application on a panel data from ten Norwegian primary aluminium plants, we find support for our hypothesis. We present estimates of price elasticities, returns to scale and scope, and product specific demand elasticities. Our results indicate economies of scope, i.e. it is more profitable to produce more than one output, and show sensitivity of factor demand when the product mix changes.
Subjects: 
Cost function
Multiple output
Global concavity
Returns to scale
Economies of scope
Price elasticity
Output elasticity
Panel data
Primary aluminium industry
JEL: 
C33
D21
L61
Document Type: 
Working Paper

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