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

service the firm would want to set the marginal cost of each type of
service equal to the marginal revenue derived from the sale of that
service.
The problem of allocating common costs then, may be approached
by segregating costs that are directly associated with particular ship-
ments. It may be possible to allocate other costs, if not to individual
shipments, at least to classes of shipments. One might think of a
hierarchy of costs ranked by the degree of output aggregation. Some
costs are allocable to individual shipments, others to classes of ship-
ments somehow defined, while still others are not easily allocable to
any services provided.
The crucial question is, what is the marginal cost of the ser -
vice? What would be saved if the service was not provided? For example,
the extra wear on a barge from carrying certain commodities is allocable
as the cost of that shipment.
In examining the question of output measures for transportation,
Wilson 2 provides an example of such an allocation for the case of motor
freight transport. Wilson argues that transport firms provide a wide
variety of services. This heterogeneity of transport output is, how-
ever, frequently collapsed into a single output measure, the ton-mile.
But the ton-mile is itself a heterogenous output measure.
II • • • it
is evident that the costs for 100 ton-miles must differ, depending on
the proportion of tons and miles involved." (p. 272)..
Examining ICC cost data for various combinations of weight and
distance, Wilson is able to derive total and average'cost schedules
for weight and distance. He finds that average cost declines as either
tons or miles increases, holding one variable constant. He also finds
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