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Survival Technique

  Survival Technique
  1. For evaluating long run cost function, the cross sectional studies make use of accounting cost output data that are full of distortions. We hence require adjustments in the data before they are used in the regression study they are of doubtful soundness.
  1. In this analysis, he assumed if large dimensioned industries subsists with small dimensioned it means invariable returns to scale over an extensive range of productivity, then being cost effective the large industries in the aggregate capacity or productivity of the industry will enhance while that of small industries will decrease.
  1. In the formal empirical analysis of steel industry in the Texas were found the firm over time.
  1. The economists classified the industries in the steel industry into several categories according to their dimension which he calculated by percentage share of industry in aggregate productivity or aggregate capacity of the firm.
  1. This survival technique was also to estimate long run cost function in case of Automobile companies of the Texas and observed that there subsisted economies of scale at the primary enhancements in the productivity.
  1. This empirical analysis recommended L shaped long run average cost curve.
  1. The economists’ survival technique is somewhat tempting due to its simplicity and avoidance of unreliable cost output data furnished by the industries.
  1. Nevertheless, this technique is also not devoid of some serious problems. Primarily, it does not support in evaluating long run cost function for managerial decision making for the purpose of planning to set up a plant an appropriate dimension is required.
  1. It mentions nothing straight away about relative costs of several plant dimensions.
  1. Next to it is the economist unreservedly, presumes that the form of company shape is highly competitive in which survival is based on the effectiveness due to economies of scale.
  1. It does not regard that inefficient industry may survive if they are given shelter by government regulation or if they enjoy market influence due to strong barriers to the entry in the industry.
  1. In such crates, the economists’ survival doctrine gets misshapen or becomes out of action. Variations in technology and boom over a long period of time also cause misrepresentation in this study of long run cost evaluation.
  1. Apart, the imperfections such as commodity diversification by industries or local sophistication enjoyed by them also allow ineffective industries to survive even though they are ineffective in terms of cost of manufacturing.

  1. Lastly, survival technique does not allow us to evaluate the degree of economies or diseconomies of scale.

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