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

economic theory. This, however, is certainly not likely to be true.
That is, the observations will reflect the operation of a firm where
some short-run adjustments are still taking place. Another inter-
pretation is possible: Assume that the observations made represent a
certain average level of efficiency which has been achieved in the past
and is likely to prevail for some time. The long-run relationship could
then be used to draw conclusions, for example, about the expected effects
of increasing firm size.
Four measures of firm size are readily available. These measures
are also reflections of the firm's productive capacity: towboat horse-
power, number of towboats, cargo tons of barge capacity, and the number
of barges. Since no a priori judgement can be made as to which of the
measures is the "correct one," all four have been gathered for each
firm in the sample. Each could then be tried in the statistical model
and the results compared. If the four measures yield similar results
we would gain some confidence in the use of the variables as measures
of firm size. -
. Since the observations range over a period of five years, it is
of interest to ask how costs have changed over time. This period is
reputed to be one in which the industry made substantial efforts to im-
prove its efficiency. As a result considerable attentiOn has been paid
to the equipment used, to scheduling, and other operating rules-of-thumb.
One reflection of this movement is the increasing Use of sophisticated
cost accounting techniques (for example, much of the data used in this
study was simply not available before 1962, at least in a form which
would be useful as a guide to production control). To attempt to mea-
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