Additive nonhomogeneous production functions in telecommunications

Abstract

An additive form of a nonhomogeneous production function is suggested in this paper as a tool to study economic trends in production processes. This information allows for variable elasticities of substitution and for variable economies of scale, and is readily estimated by ordinary least squares. The marginal products are explicitly stated as a function of the input ratios. This additive nonhomogeneous functional form has been empirically tested on telecommunications data, related to Bell System, Western Electric, and Bell Canada production systems. Marginal products and elasticities have been computed and compared with the same series generated by a multiplicative nonhomogeneous form recently proposed by H.D. Vinod. Several similarities as well as major differences between the findings are cited and discussed. The author concludes that the additive formulation offers a more plausible description of some aspects of the Bell System and Bell Canada production processes than comparable findings generated by the multiplicative formulation.