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

defined to be the percentage change in factor use accompanying a
1 percent change in all of-the output variables, holding constant the
stocks of equipment. Decreasing returns to scale are implied by a
value of the elasticity coefficient which is greater than unity; in-
creasing returns are implied by a value of the coefficient which is
less than unity. The elasticity of variable cost was also estimated.
This is defined as the percentage change in variable cost accompanying
a 1 percent chahge in the output variables, holding constant the stock
of equipment. This particular elasticity was calculated by takihg a
weighted ailerage of the factor-use elasticities, where the weights '
consisted of the proportion of total variable cost expended on the
particular inputs. These proportions were derived from the aggregate
expense accounts of all the' railway firms.
The models of the switching process indicated a cost elasticity
not significantly different from unity, implying constant returns td
scale. For the linehaul process, there was a considerable difference
between the cost elasticity coefficients indicated by the two models:'
the first model , exhibited a coefficient close to unity, but the second
showed a coefficient of one-half, implying increasing returns to scale.
As:in the cost study discussed previously, Sorts used annual
Interstate Commerce Commission cross-section data for the year 1948.
In addition, the variable cost proportions were based onligures summed'
across firms, and" it Is possible that the-proportion used have little '
'relevance to the actual proportions of individual firms. Finally, it
should be mentioned again that slightly fewer than one-third of the
estimated coefficients were not significantly different from zero.
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