Estimating Production Activity Costs for Multioutput Firms with a Random Coefficient Regression Model

Abstract

Abstract A random coefficient regression model provides an approach for estimating the mean variable costs of specific enterprise production activities for each output over a population of multioutput firms. The model specifically acknowledges that these farm‐level costs vary from farm to farm. In addition, best linear unbiased predictions can be estimated for each activity for an individual farm. The mean estimates are quite useful for ex post cost analysis, thereby providing per unit cost estimates for farmers, governmental agencies, and researchers. The best linear unbiased predictions can be used by individual farmers for planning yearly operations, applying for operating loans, and analyzing marketing strategies.