Economies of Scale in Multi-Product Firms: An Empirical Analysis

This paper presents new evidence on scale economies in multiproduct firms. Previous studies are limited in view of r ecent advances in the theory of the multiproduct firm. The water util ity is chosen here as a multiproduct firm providing multiple services to various classes of customers with spatial variation. A translog m ultiproduct cost function is estimated, based on duality between tran sformation and cost functions. The paper analyzes overall, as well as product-specific, scale economies. It also discusses ray average cos t curves and derives the M locus which provides useful information on scope economies and the cost-minimizing number of firms.