An Analysis of the Cost Structure of Food Industries in Pakistan: An Application of the Translog Cost Function

Given the importance of food industries in Pakistan, this study analyzes their cost structure by estimating the transcendental logarithmic cost function. The study also considers elasticity of substitution along with own-price elasticity and cross-price elasticity. Four factor inputs, i.e., labor, c...

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Bibliographic Details
Published in:The Lahore journal of economics 2020-07, Vol.25 (2), p.1-22
Main Authors: Hussain, Sajid, Nisar, Uzma, Akram, Waseem
Format: Article
Language:English
Subjects:
Costs
Economies of scale
Elasticity of demand
Energy
Food
Food processing industry
Manufacturing
Maximum likelihood method
Price elasticity
Prices
Production functions
Restrictions
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Summary:Given the importance of food industries in Pakistan, this study analyzes their cost structure by estimating the transcendental logarithmic cost function. The study also considers elasticity of substitution along with own-price elasticity and cross-price elasticity. Four factor inputs, i.e., labor, capital, energy, and materials, are used to estimate the cost function. The results indicate that materials account for the highest share of the cost. The elasticity of substitution of materials for capital and energy is also weak. The own-price elasticities indicate that the demand for materials is least responsive to a change in its own price while the demand for other inputs varies with price. The cross-price elasticities show that labor, capital and energy are substitutes for each other. The output elasticity of cost demonstrates the presence of economies of scale.
ISSN:1811-5438
1811-5446