Difficulties in Measuring Cost
1) Output data may represent an aggregate of different type of products.
2) Cost data may not include opportunity cost.
3) Allocating cost to a particular product may be difficult when there is more than one product line.
* Cost Functions and the Measurement of Scale Economies
- Scale Economy Index (SCI)
- EC = 1, SCI = 0: neither economies nor diseconomies of scale
- EC > 1, SCI is negative: diseconomies of scale
- EC < 1, SCI is positive: economies of scale