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

The five firms in the sample represent major inland waterway
carriers. Taken as a group, their barging operations are highly
d:versified. They operate on all of the navigable tributaries of
the Mississippi and Gulf Intercostal River Systems, including the
Missouri River, the Gulf of Mexico, and Lake . Michigan. In addition,
the five firms offer essentially a complete range of water transport
services, both with respect to commodities handled, and equipment
available for freight transportation.
Although the firms in the sample are among the largest firms in
the industry (measured either in current output and revenue, or by
size of equipment stocks), nevertheless, there are considerable dif-
ferences in their absolute size. For example, the largest firm, as
measured by total 'available horsepower, wag on the average 3.3 times
larger' than the smallest iirm'in the sample.
Several surrogate measures could be used to correct for firm
size in the statistical model. Since the firm size-cost relationship
carries the interpretation of long-run costs, the measure selected
should be a reflection of the productive capacity of the firm at any
one time. That is, any paired cost-size observation . should represent
the least cost way of operating a firm of particular size. It should
be noted, however, ,that when historical data are used in statistical
cost estimation these theoretical efficiency assumptions are not
necessarily met. The data, in general, do not describe the least
cost solution for a particular firm; rather they represent the actual -
cost of operating particular firm sizes included - in the sample.
One could assume that the observations do represent minimum cot
points and interpret the estimated results as the long-run costs of
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