Masters Theses

Date of Award

6-1969

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

James G. Snell

Committee Members

Merton B. Badenhop, Charles L. Cleland, B.D. Raskopf

Abstract

This study was designed: (l) to develop economically and statistically sound cost functions for the assembly and distribution operations of the Tennessee egg industry, and (2) to determine if economies of scale were present in the assembly and distribution operations.

The data were obtained from a population of 75 egg handling firms in Tennessee. Basic data were obtained from expense invoices, payroll accounts, operating statements, income tax statement, and other accounting records related to the 1967 assembly and distribution operations of the 75 firms.

Least squares stepwise regression was used to develop cost functions and quasi economies of scale functions. A series of models was developed in both the cost function and the economies of scale analysis. After arriving at various statistical and economic conclusions, the superior equation for each analysis was selected.

The superior cost function selected from the analysis with regard to both the assembly and distribution of eggs was composed of three exogenous variables: (1) reciprocal of the volume of eggs handled, (2) wage rate, and (3) cases of eggs handled per man hour. These three variables explained 9i+ percent of the variability in assembly cost per case of eggs and 55 percent of the variability in distribution cost.

The superior quasi economies of scale function for both assembly and distribution employed the reciprocal of the volume variable. By utilizing this functional form, 84 percent of the variability in assembly cost was explained by variation in volume, and 26 percent of the variability in distribution cost was explained by variations in volume. Thus, it was concluded that this functional form developed the best quasi economies of scale curves. Since the equations were developed by least squares analysis and did not establish a method to connect minimum cost points, the true economies of scale curves were not developed. However, it was concluded that this analysis produced evidence that economies of scale exist in the assembly and distribution operations.

The study does not reveal specifically how to reduce cost or how to change the size of operation to obtain lower cost. Instead, it provides a means by which a firm may gain a priori knowledge of factors that greatly effect assembly and distribution cost, as well as a priori knowledge of the relative importance in the size of operation.

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