This paper examines the characteristics necessary for an allocation of joint-input costs to yield optimal product-mix/production-expansion decisions. In a setting where cost savings result from obtaining an input jointly, a unique allocation procedure is presented that will allow managers to make optimal decisions. The procedure is generalizable to virtually all possible production functions. In highly competitive markets, this allocation procedure is closely approximated by the relative-sales-value method.
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Ayres et al. (1989) studied this question.
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