Econometrica: Jul, 1950, Volume 18, Issue 3

Empirical Determination of a Multidimensional Marginal Cost Function

https://doi.org/0012-9682(195007)18:3<217:EDOAMM>2.0.CO;2-L
p. 217-235

A. R. Ferguson

An empirical cost function for fuel consumption in air transportation is obtained from a consideration of the engineering determinants of the relationship between physical inputs and physical outputs. The accuracy of fuel consumption estimates so obtained is considered in the light of operating data for Northeast Airlines. Marginal cost functions are derived which facilitate theanalysis of the impact upon cost, not only of changes in output and factor prices, but also of changes in quality of the product and the techniques of production. The advantages and limitations of the approach are indicated.