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General Cost Model > Translogarithmic Cost Function - Pg. 103

General Cost Model 103 It is easy to see that if one of the outputs is zero, then total cost equals zero, which is not likely the case for a firm producing positive amounts of the other output. Note: Because the parameters to be estimated enter nonlinearly in the equation, ordinary least squares (OLS) cannot be used. Translogarithmic Cost Function The (two-output) translogarithmic cost function (with input prices, p k ) is ln CðY, pÞ = 0 + i i lnY i + i j ij lnY i Y j + k k lnp k (4:10) for i, j = 1, 2. Because the natural log of zero is undefined, any output vector in which Y takes on a value of zero renders total cost of production undefined. Despite its popularity, this form is simply not appropriate for modeling cost in multiple- output industries. 6. The functional form of the cost function should not influence the analysis and resulting conclusions. Because cost functions are often used to deter- mine the optimal industry structure (i.e., number of firms, etc.), via concepts