Journal of Productivity Analysis

, Volume 2, Issue 2, pp 91–102 | Cite as

Marginal and total production cost indices: Theory and applications

  • Michael R. Baye
  • Mary E. Deily
  • Dennis W. Jansen


We show that the total cost of production index and the marginal cost of production index may be used to illuminate the course of an industry's evolution. Each of these summary statistics conveys different bits of information about the industry. Theoretical properties of the indices are compared, and then the indices are applied to data from the steel industry to illustrate how changes in the indices over time reflect fundamental changes in industry conditions.


Production Cost Marginal Cost Summary Statistic Total Production Fundamental Change 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Baye, M.R., and D.A. Black. (1986). Consumer Behavior, Cost of Living Measures, and the Income Tax. Berlin: Springer-Verlag.Google Scholar
  2. Deily, M.E. (1988a). “Investment Activity and the Exit Decision.” Review of Economics and Statistics 70(4), 595–602.Google Scholar
  3. Deily, M.E. (1988b). “Exit Barriers in the Steel Industry.” Federal Reserve Bank of Cleveland Economic Review. 24(1), 10–18.Google Scholar
  4. Deily, M.E. (forthcoming). “Exit Strategies and Plant-Closing Decisions: The Case of Steel.” Rand Journal of Economics. Forthcoming.Google Scholar
  5. Deily, M.E., and D.W. Jansen. (1989). “Factor Adjustment Costs at the Industry Level.” Federal Reserve Bank of Cleveland Working Paper. No. 8911. September.Google Scholar
  6. Diewert, W.E. (1982). “Duality Approaches to Microeconomic Theory.” In Handbook of Mathematical Economics II. K. Arrow and M. Intriligator, (eds.), Amsterdam: North Holland.Google Scholar
  7. Eichhorn, W. and J. Voeller. (1970). Theory of the Price Index. Berlin: Springer-Verlag.Google Scholar
  8. Färe, R. and C.A.K. Lovell. (1984). “Affinitely Homothetic Production Technology.” Methods of Operations Research 48, 197–205.Google Scholar
  9. Fisher, I. (1922). The Making of Index Numbers. Boston: Houghton Mifflin.Google Scholar
  10. Hansen, Lars Peter. (1982). “Large-Sample Properties of Method of Moments Estimators.” Econometrica 50, 1029–54.Google Scholar
  11. Hansen, Lars Peter, and Kenneth Singleton. (1982). “Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models.” Econometrica 50, 1269–86.Google Scholar
  12. Karlson, Stephen H. (1983). “Modeling Location and Production: An Application to U.S. Fully-Integrated Steel Plants.” Review of Economics and Statistics 65(1), 41–50.Google Scholar
  13. Pindyck, Robert S., and Julio J. Rotemberg. (1983). “Dynamic Factor Demands and the Effects of Energy Price Shocks.” American Economic Review 73(5), 1066–1079.Google Scholar

Copyright information

© Kluwer Academic Publishers 1991

Authors and Affiliations

  • Michael R. Baye
    • 1
  • Mary E. Deily
    • 2
  • Dennis W. Jansen
    • 3
  1. 1.Department of EconomicsThe Pennsylvania State University, and Center for Economic ResearchUSA
  2. 2.Department of EconomicsLehigh UniversityUSA
  3. 3.Department of EconomicsTexas A&M UniversityUSA

Personalised recommendations