Long‐Run Profit Functions for Multiproduct Firms

Abstract A long‐run specification of the multiproduct profit function is developed from the restricted profit function. The multiproduct restricted profit function and the envelope condition are used to estimate the optimal, long‐run levels of the quasi‐fixed factor. Formulas for long‐run Marshallian elasticities of substitution and transformation, economies of scope, product‐specific and overall economies of scale, and economic measures of capacity utilization are developed for the translog functional form. The methodology is illustrated by a case study of the New England otter trawl industry.