Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

EnAincering Approach. The data on which engineering production
functions are based consist either of technological information from
physical or chemical theory or from empirical analyses of carefully
controlled experiments. For example, in the estimation of a produc-
tion function for electrical transmission, the following relationships
were used: the law of energy consumption, the law of heat dissipation
in electrical circuits, Ohm's law governing electricity flow in a cir-
cuit, and an empirical law concerning the conductive and resistive
properties of materials. 16
There are several advantages in estimating production functions
from engineering data and principles. The range of applicability of
the function is known in advance; it does not depend, in general, on
data limitations. Unlike the information used in cross-section and
time-series studies, engineering variables are not typically restricted
to the range of actual observation. Moreover, the results of produc-
tion investigations are not biased by the type of equipment actually
installed in a plant. Therefore, production functions based on engi-
neering data and relationships more closely conform to the production
function of economic theory. It follows that cost curves derived from '
such production functions also possess the same advantages and also ,
approximate more closely those of economic theory.
Problems remain, however. If one wishes to estimate a firm's
production function, it may be necessary Co first estimate process,
functions for the several processes comprising a firm's total activi-
ties. In order to do this, processes must be independent and additive.
It has, however, been suggested that this is not an insurmountable