Showing papers on "Variable cost published in 1989"

Entry and Exit Decisions under Uncertainty

Abstract: A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Numerical solutions are obtained for several parameter values; hysteresis is found to be significant even with small sunk costs.

Price Wars Caused by Switching Costs

Abstract: In many markets consumers have "switching costs", for example learning costs or transaction costs, of changing between functionally equivalent brands of a product, or of using any brand for the first time. We analyse a four-period complete-information model of a market with switching costs in which new entry occurs after the second period. The new entry results, in equilibrium, in a price war. That is, the new entrants' prices are higher in the post-entry period than in the entry period, and the incumbent's price falls in either the pre-entry period or the entry period and subsequently rises. We can interpret the incumbent's lowering its price in the pre-entry period as limit-pricing behaviour. We distinguish between two types of price war that can occur, and show how the type or mixture of types that arises depends on the size of switching costs.

A nonlinear programming approach to optimal static generation expansion planning

Abstract: This paper shows how a standard nonlinear programming approach can be applied to solve a sophisticated version of the static optimal mix problem in generation planning. The solution of the static mix problem can provide useful insights if the underlying model is able to capture the relevant features of the actual system. The model presented in this paper considers technical minima of thermal capacity, detailed operation models of storage-hydro and pumpedhydro units, a realistic model of capital costs for hydro plants, operating reserve and minimum demand constraints, and also capacity already in existence. The model formulation is in a format that can be directly handled by the well-known Stanford's MINOS code and can be efficiently solved. A realistic application to the Spanish generation system is presented. The optimal static generation mix problem can be determined by minimizing the cost function that includes the variable costs and the equivalent fixed annual costs of all the technologies in operation during the prescribed horizon year. The technologies considered are: thermal, storage-hydro and pumped-hydro. A number of technical and economical considerations constraint the minimization cost function: i) The sum of all installed available capacities has to exceed the maximum demand by a prescribed reserve margin to acccommodate changes in available capacity or in demand. ii) The sum of all technical minima plus run-of-the river hydro must not exceed the minimum demand plus the base-load capacity devoted to pumping. iii) All the installed capacities must be non-negative.

Economic Benefits of an Effective Infection Control Program: Case Study and Proposal

Abstract: An economic model of the 981 nosocomial infections that occurred in 1985 at the University of Virginia Medical Center was developed. It was determined that $2,401,709 in excess charges and $2,111,753 in excess variable costs were saved in 1985 as a result of having an effective infection control program in place. If a nominal per diem patient fee ($5) were billed to each patient or third-party carrier for preventive services rendered by the infection control team and channeled to infection control for the 196,141 patient-days in 1985, income of $980,705 would have been generated, leaving net income of $812,979 after the deduction of infection control operating costs. In addition, patients, third-party payers, and the hospital would have still saved $1,421,004 in excess charges, or $1,131,048 in excess variable costs, in prevented infections. Infection control programs are extremely cost effective, and if preventive care is to be encouraged, financial incentives for value received for infection control services are needed.

Measuring Productive Efficiency in Multiple Product Agribusiness Firms: A Dual Approach

Abstract: Measuring retail fertilizer plant efficiency is difficult, given the range of outputs produced by these multiple product firms. A frontier multiproduct cost function was employed to measure productive efficiency. Results suggest the average plant could lower variable costs by 10% through more effective operations. Allocative inefficiency was minimal, indicating management should focus on improving technical efficiency. The limitations of employing a single-product model in a multiproduct situation are demonstrated.

Estimating Production Activity Costs for Multioutput Firms with a Random Coefficient Regression Model

Abstract: A random coefficient regression model provides an approach for estimating the mean variable costs of specific enterprise production activities for each output over a population of multioutput firms. The model specifically acknowledges that these farm-level costs vary from farm to farm. In addition, best linear unbiased predictions can be estimated for each activity for an individual farm. The mean estimates are quite useful for ex post cost analysis, thereby providing per unit cost estimates for farmers, governmental agencies, and researchers. The best linear unbiased predictions can be used by individual farmers for planning yearly operations, applying for operating loans, and analyzing marketing strategies.

The administrative costs of energy conservation programs

Abstract: The administrative costs of energy conservation programs are substantial. In this article, data on the administrative costs of programs are examined to identify factors that produce variations in these costs and to make recommendations about planning assumptions. Current planning approaches implicitly assume that administrative costs add a fixed ratio of expenses to the direct costs for energy conservation measures. In reality, administrative costs vary by the stage of program development, the type of technology being promoted, the extent of program marketing and financial incentives being offered, the desired level of market penetration, and the market segment to which the program is aimed.

Winning by Being the First to Market... or Second

Abstract: Discusses the benefits and disadvantages of pioneering new markets compared with following prudently into new markets. Argues that which strategy is best depends on both conviction about the product and potential market and the firm′s ability to maintain market leadership. Concludes that a pioneering approach provides critical lead time whereas a follower approach yields benefits in fixed and variable costs.

Cost-analysis of neonatal intensive and special care.

Abstract: In the present economic climate and with increasing expenditure on neonatal intensive care, there has been a demand for economic evaluation and justification of neonatal intensive care programmes. This study assesses the inhospital costs of neonatal intensive care. Fixed and variable costs were calculated for services and uses of an Intensive/Special Care Nursery for the year 1985 and corrected to 1987 Australian dollar equivalents. Establishing a new neonatal intensive care unit of 43 costs in an existing hospital with available floor space including operating costs for a year were estimated in Australian dollars for 1987 at $6,408,000. Daily costs per baby for each were $1282 ventilator, $481 intensive, $293 transitional and $287 recovery, respectively. The cost per survivor managed in the Intensive/Special Care Nursery in 1985 showed the expected inverse relationship to birthweight being $2400 for greater than 2500 g, $4050 for 2000-2500 g, $9200 for 1500-1999 g, $23,900 for 1000-1499 g and $63,450 for less than 1000 g. Further analysis for extremely low birthweight infants managed in 1986 and 1987 demonstrated costs per survivor of $128,400 for infants less than 800 g birthweight and $43,950 for those 800-999 g. This methodology might serve as a basis for further accounting and cost-evaluation exercises.

Uncertainty, Capacity and Flexibility: the Monopoly Case

Abstract: It is generally expected that profit maximisation leads a firm to choose a more flexible plant the more uncertain its demand function is and/or the more variable is the sequence of quantities to produce. In this paper we make explicit the precise conditions under which this intuitive argument is valid. We show that a sufficient condition is that the increase in uncertainty must involve only those states of demand for which the firm is initially active, that is for which it is able to cover quasi-fixed and variable costs. These are common assumptions in most flexibility choice models. But we also show that a reverse relation between the variability in demand and plant flexibility may exist under reasonable cost and demand conditions, even under the most common definition of increased uncertainty in demand and the most acceptable notion of plant flexibility. We give an example of such an inverse relation.

Break-even Analysis

Abstract: Break-even analysis is concerned with predicting costs, volume and profit as the level of activity changes. The theory of break-even analysis is derived from the principles of marginal costing and the assumptions and definitions of fixed and variable costs and their behaviours discussed in earlier chapters are used. Break-even analysis can be conducted by constructing a chart or applying a formula. A break-even chart shows the approximate profit or loss at different levels of activity. A formula is frequently used to calculate the break-even point which is the level of activity at which the company makes neither profit nor loss, but breaks even.

Realistic Cost Estimating for Manufacturing

Abstract: This revised edition contains material on the use of software, organization strategies in cost estimating, new types of costs, learning curves, and much more. Topics presented include manufacturing costs, standard vs. actual costs, cost in relation to product volume, analysis, types of estimates, cost estimating controls, cost requests from other departments, evaluating supplier quotes, calculating selling prices, and much more.

Misused Product Costing in the American Railroad Industry: Southern Pacific Passenger Service between the Wars

Abstract: Reflecting recent studies that have highlighted the importance of product cost accounting, this article traces the resistance of American railroad managers to the tool, despite growing pressure from academic and engineering economists. This study reveals widespread misunderstanding among managers about the nature of railroad costs, particularly misconceptions about the proportion of fixed and variable costs and the definition of direct costs. It illustrates the impact of these misapprehensions through a detailed examination of Southern Pacific's interwar passenger strategy.

Variance ofPowerGenerating System Production Costs

Abstract: Production costing models currently used in the electric power industry provide information on the expected energy produced by the generating units within a given system and the expected system production costs. They do not give information on the extent of fluctuation of these costs. Using the Baleriaux framework for production costs, this paper provides formulas for computing the variance of the system production costs. Numerical results show that the coefficient of variation of these quantities can be quite large thus highlighting the need for considering variances in addition to the expected values in production costing models. Following the Baleriaux [1 ] framework, the paper assumes, (a) the there are n units in the system, (b) that the units are brought into operation in accordance with some specified measure of economy of operation, and (c) that the ith unit, in decreasing order of economy of operation has capacity, c;, and forced outage rate, pi, i = 1, 2, * *, n. Define U to be the system load and let the load duration curve be represented by F(x) = Pr(U > x). Let Xi denote the unavailable capacity or the capacity on outage for unit i at a given time. Thus Xi is a random variable with a distribution of

The costs of clinical trials.

Abstract: Clinical trials are expensive. It is not that their aggregate costs are high. Although over $1 billion per year goes for clinical trials, this represents only about 0.3% of national health expenditures. 1 But clinical trials cost a lot per study— often millions—and so have a high profile in public discussions about the costs of biomedical research. Are clinical trials cost-effective? In this issue of JAMA , Detsky 2 examines this question. Using the methods of cost-effectiveness analysis, 3,4 he weighs the costs of clinical trials against their effectiveness, then compares the results with commonly accepted costs of medical care. The costs are those of the trials themselves, both the fixed costs of supporting the research team and the variable costs related to the number of patients studied. Effectiveness is expressed as lives saved as a result of the new information from the trial, taking into account the number of people

Public sector pricing in a fiscal context

Abstract: Administered prices should deviate from marginal cost if they are to be used as instruments to generate revenue The analysis is based on the Bank's two-step approach to public sector pricing: first calculating marginal cost, and then adjusting it to account for other factors The aim is to show how those adjustments should be made to account for fiscal concerns The appropriate basis for pricing in the first step, the author contends, is a weighted average of short and long term marginal costs Deviations from marginal cost in the second step are shown to depend on their revenue raising, distortionary, and distributional effects The author argues that it is better to raise prices above marginal cost through taxes than by raising the price received by the enterprise The author describes how to set charges in the face of metering difficulties, stressing the need to set unifrom charges and to make indirect charges on inputs

The financial costs of inpatient pressure ulcers to an acute care facility.

Abstract: The variable costs for treatment of pressure ulcers in an acute care facility that is part of a health maintenance organization were examined in a three-month, retrospective study. The average age of these patients was 75.61 and the average cost of treatment per day was $80.42. The average total variable cost per patient was $1,300.37. The average variable cost for treatment of a patient admitted for an ulcer was $3,746.03, while the average variable cost for treatment of patients admitted for other reasons was $621.02.

Variable cost frontiers and efficiency: an investigation of labor costs in hospitals

Abstract: Health economists recognize that the rising cost of hospital services is due, at least in part, to features of the industry which create costly resource misallocation that decreases productivity. Organizational structure, lack of competition in the market for health care in some areas, imperfections in factor markets, and government regulation have all been hypothesized to effect the cost minimizing performance of hospitals. A growing body of empirical research which seeks to investigate cost inefficiencies in the health care industry and these predications of the effect of industry structure on performance has resulted. Most of this work has followed one modeling approach: (1) measuring either total cost or technical efficiency with aggregate measures of non- physician labor (2) without examining the technical and allocative components of cost inefficiency (3) and using statistical techniques to estimate a parametric cost or production frontier. In this study additional empirical evidence on inefficiency of hospitals is provided using a different modeling approach.

On the marginal capital costs of peak and off-peak transit services

Abstract: In this paper, the issue of the marginal capital costs of peak and off-peak services is revisited. A model is presented in which vehicle life is a function of usage (rather than elapsed time), and capital costs are determined using the capital recovery factor approach (in preference to the still-common "depreciation and interest" approach). These two features of the model interact to suggest explanations as to why the conditional marginal capital costs of off-peak services can be substantial, and why total capital costs may not be directly proportional to peak vehicle requirements.

Cost impacts of automatic test equipment purchase decisions

Abstract: Because modern semiconductor test equipment may cost millions of dollars per unit, the common perception is that test equipment costs are a major portion of the cost of a semiconductor device shipped Using a computer model which identifies many of the cost components in the production of semiconductor devices, the author shows that test equipment costs are a very small percentage of the total cost of a device He examines the cost of production per device, using many identifiable costs and including them in the model More important, the costs incurred before a device arrives at the test site are included in the calculations Other costs, such as labor overhead, and associated capital costs, are also included The author shows that the performance of the test equipment has a much larger financial impact than the cost of the equipment >

Pricing and regulatory issues in urban transport

Abstract: The paper first categorizes public policy interventions to improve traffic in cities, through quantity and price management focused on public and private transport It notes that availability of both information and skills in planning staff can bias the policy choice Thereafter the paper focuses on price management of public transport Public transport pricing has two basic elements: the pricing of inputs (such as road space) and the pricing of output (fares) Road space should ideally be priced at its marginal cost, or as a second best solution where otherwise public subsidies would be required to cover capital costs, via price discrimination, for instance with two-part pricing fares, to increase revenues An important point is recalled, that traffic management can be an alternative to pricing and achieve the same results Fare regulation, on the other hand, introduces a variety of distortions, as does the regulation of provision of services The cost of distortions can be measured in various ways One way is through supply and demand functions for public and private transport; the example of the high cost of distortions in London is given Other ways are through measuring gains of traffic management systems and of deregulation processes In addition to distorting resource allocation, fare regulation has an impact on income distribution Fare regulation normally involves subsidies to improve mobility of the poor; however, the objectives are seldom met with and the costs are high Better alternatives to granting subsidies are to improve public transport efficiency and, thereby, to reduce the cost of service; to adopt unregulated fare policies; and to improve the system of route allocation to improve service

Subsidizing Industrial Location: A Conceptual Framework with Application to Korea

Abstract: How can policymakers in developing countries best induce firms to locate at particular sites? To glean answers to this question, the author develops the first rigorous conceptual framework for analyzing the economic efficiency of alternative policies to influence firms' choices of location. The framework is rooted in a theory of optimal subsidies and relies on econometric and simulation models of firms' costs. The econometric model is estimated with data from a census of manufacturing and from a recent, comprehensive World Bank study of industrial location policies, both made in the Republic of Korea. These estimates serve as the basis for a simulation model that is used to examine the various subsidies that constitute location policies. The simulation model is used with the Korean data to analyze these subsidies - which include loan guarantees, reductions in land prices, public investments such as better roads, and tax breaks. The simulations allow the author to evaluate the benefits and costs of the subsidies and to discuss their relative efficiencies.

Some aspects of accident costing and costs in australia

Abstract: The unit cost approach is discussed and the stability of outcome of accident-type casualty classes illustrated. The unit cost approach appears to be the most useful technique, provided all the involved persons and vehicles are accounted for. Unit costs can be applied to State totals and to individual accident-types. The use of accident-types is essential for a proper cost benefit assessment of a countermeasure. The unit cost approach is applicable irrespective of whether the costs have been derived by ex post or ex ante considerations. Further work should be done on vehicle damage costs by accident type, and casualty class by accident type data are needed from at least one other State. Language: en

Cost-effectiveness of the variable cost-share option in the Agricultural Conservation Program

Abstract: Counties employing the variable cost-share option within the Agricultural Conservation Program were compared with those employing uniform-rate cost-sharing in West Tennessee for fiscal years 1985 and 1986. Public cost per ton of erosion reduction was higher in counties employing the variable cost-share option wen though the average preparative erosion rate and average erosion reduction per acre treated were greater. The reason was that the total cost and the average cost-sharing rate per acre treated were much higher in counties employing the variable cost-share option. Recommendations for adjustments in the formula for computing variable cost-sharing rates are provided.

Comparative economic analysis of diversified crops under irrigated and rainfed conditions and their irrigated performance versus irrigated rice

Abstract: A comparison of the profitability of selected diversified crops under irrigated and rainfed conditions and their irrigated performance with that of irrigated rice under the Laoag Vintar River Irrigation System (LVRIS) and Bonga Pump No. 2 (BP#2) was done during the dry cropping seasons 1986-88. Predominant cropping patterns identified were rice-garlic-mungbean and rice-rice-mungbean. The study found that: 0 Under LVRIS. material costs for irrigated garlic was higher than irrigated rice during the 1986/87 dry season. During the 1987/ 88 dry season, gross returns, total family labor, materialcosts, total variable costs, and returns above variable cost for irrigated garlic were higher than for irrigated rice. Under BP#2, results were almost similar during both cropping seasons. 0 Under LVRIS and BP#2, no significant differences were observed between the economic parameters of irrigated rice and irrigated mungbean during the 1986/87 dry season. During the 1987j88 dry season, however, gross returns, labor and power costs, material costs, totalvariablecosts. and returns lo material costs were higher for irrigated rice than for irrigated munghean. 0 Material costs and total variable costs were higher for irrigated garlic than irrigated rice under both systems during the 1986187 dry season. During the 1987/88 cropping at LVRIS and BP#2, gross returns, total family ldhor, labor and power costs. material costs, total variable costs, and returns above variable costs was higher, while returns to material costs was lower for irrigated garlicthan for irrigated mungbean. A follow-up survey is recommended for more conclusive results. Introduction /Significance Objectives llocano farmers have been traditionally The study aimed to compare the profitability planting diversified crops in irrigated areas. Howof selected diversified crops under irrigated and ever, the socio-economicviability ofthis practice is rainfed conditions, and their performance with still vague. Thus, data on production (ex. resource irrigated rice. Specifically, thc study aimed to: use, cropping systems, farm inputs and yield) and (a) identify existing cropping patterns and comeconomic iactors (e.g. prices, marketing practices pare their profitability; (b) identify the most efliand systems, credit, etc.) musf be gathered, cient means of utilizing family labor; (c) determine analyzed and documented. Data gathered will the net returns to family labor and investment; and serve as baseline information in determining farm (d) identify the economic factors affecting crop profitability and will also serve as a tool in guiding diversification. farmers in decision-making for agricultural production. Government agencies can also refer to this study in formulating policies relevant to irrigation systems and management. Chairman. lkpartment of Agricultural Fxconomics and Assistanl Professor, Department of Agricultural Engineering, College of Agriculture and Foreslly. Mariano Marcos State University, Batac, llocs None.

Cost analysis applications of economics and operations research : proceedings of the Institute of Cost Analysis National Conference, Washington, D.C., July 5-7, 1989

Abstract: I. Procurement and Contracting.- The Prototype Model of Defense Procurement.- A Contract Termination Processing Model and System for Naval Supply Demand Review (SDR) Actions.- Hellfire Missile Competition Case Study.- Strategies for Reliability Incentive Contracting.- II. Cost and Economics.- A Stochastic Theory of the Generalized Cobb-Douglas Production Function.- Turbulence, Cost Escalation and Capital Intensity Bias in Defense Contracting.- Modeling the Firm-Level Multiproduct Cost Structure of Agricultural Production.- Transaction Costs and Their Impact on Energy Demand Behaviour.- III. Efficiency in Production.- Returns to Scale and Efficiency in Production: A Distance Function Approach to Southern Illinois Hog Farms.- Variable Cost Frontiers and Efficiency: An Investigation of Labor Costs in Hospitals.- Costing Out Quality Changes: An Econometric Frontier Analysis of U.S. Navy Enlistments.- IV. Recent Developments in Cost Modeling.- Cost Modeling for Design Justification.- The Effect of Technology on the Supportability and Cost of Avionics Equipment.- Rocket Propulsion Cost Modeling.- Schedule Estimating Relationships for Tactical Aircraft.- V. Production Lot Sizing.- Lot Sizing and Work-In-Process Inventories in Single Stage Production Systems.- Optimal Strategies for Investment in Setup Cost Reductions in a Just-in-Time Environment.- Process Control With Lot Sizing.- VI. Mathematical Programming Models for Cost Analysis.- Evaluation of Computer Assisted Telephone Interviewing as a Survey Methodology by Means of Cost Models and Mathematical Programming.- Two Quadratic Programming Acquisition Models With Reciprocal Services.- VII. Operations and Support Cost.- Analyzing the Economic Impacts of a Military Mobilization.- The Value of Weapon System Reliability in a Combat Environment: Costs and Performance.- The Use of the Army College Fund: Implications for Program Cost Effectiveness.