Chapter 1 Technological determinants of firm and industry structure

This chapter discusses the cost concepts required for analyzing the role of technology in the determination of firm and industry structure. It focuses on the general multiproduct case, although important single product aspects of the problem are also discussed. An analysis of the role these cost concepts play in determining efficient industry structure is presented in the chapter. The most basic concept with which to characterize the productive technology available to the firm is the technology set, a list of the combinations of inputs and outputs that are available to the firm. In a private enterprise economy, any industry structure that persists in the long run must yield the firms in the industry at least zero economic profits. This places certain restrictions on the relative locations of the cost and demand curves. In an empirical application that attempts to estimate the cost function of an individual firm, the data available may be better suited for estimating a short-run cost function: a specification that assumes that only some of the inputs available to the firm are set at their cost-minimizing levels.