The object of study is to seek out and analyze factors which affect the unit cost of cement production and to evaluate the relative impacts of specific factors on the firm's cost. The data used for this study cover six firms in Korea over a six-year from 1974 to 1979. Six explanatory variables and the unit cost as the dependent variable are selected. Cross-section and timeseries data are combined through covariance analysis, which enable us to have 36 observations for each variables.
In recent years, a number of studies have been undertaken to estimate the short-term cost relationship of firms. In general the findings of these studies point toward the existence of economies of scale in firm operations. This study formulatues and analyzes the short-term economic decision model of firms. The model can be helpful in placing in broader persective the structure and causual relationship between the cost of a firm and the selected factors. The objective of this study is to estimate the true relationship between the unit cost of firms and selected variables.
The result of this study shows that the scalar economics exists in the cement production. This conclusion has been reached on the basis of the finding that marginal cost is continuously increasing but average cost has only one minimum point where AC crosses MC. In addition, analysis of the cost-output relationship show that the size of a firm is negatively related to its unit cost and the relationship is statistically significant.
Generally, a firm can increase its outputs only by a greater rate of capacity utilization of various facilities. Since the expenses of maintaining a fixed facility are largely fixed, the unit cost must decrease as output increase. The relationship observed is that between unit cost and capacity utilization. This observation is bases by the estimated β-coefficient of capacity utilization is significantly and negatively related to firm's unit cost. In summany, this study shows one aspect of cement production which leads to economics of scale. The results of the analysis of other factors are not always conclusive. A firm's administrator and policy maker should make a judgement on what use can be made of this study.
