Difficulties in measuring cost, Microeconomics

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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

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