TY  - JOUR
AU  - Morrison,Catherine J.
TI  - On the Economic Interpretation and Measurement of Optimal Capacity Utilization with Anticipatory Expectations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1536
PY  - 1985
Y2  - 1985
UR  - http://www.nber.org/papers/w1536
L1  - http://www.nber.org/papers/w1536.pdf
N1  - Author contact info:
Catherine J. Morrison
Department of Agricultural Economics
UC, Davis
Davis, CA  95616
Tel: 617/381-3560
E-Mail: no email available
AB  - This study builds on recent research giving the notion of capacity utilization clearer economic foundations. In this research optimal output Y* is defined as the minimum point on the firm's short-run average total cost curve, and capacity utilization is then computed as CU=Y/Y*, where Y is actual output. Here I extend these concepts to include adjustment costs due to changes in the stock of capital, and nonstatic expectations of future output demand and input prices. The more general notion of CU is shown to depend on the shadow values of the firm's quasifixed inputs, and is decomposed to isolate the effects of anticipatory expectations. An empirical comparison is then made between traditional indices and alternative economic CU measures, using annual U.S. manufacturing data 1954-80. The calculated indices exhibit plausible patterns, which can be interpreted as the effects of nonstatic expectations and adjustment costs.
ER  -