Abstract
This paper tests for economies of scale in the electric utility industry using a five-year panel data set that includes both fossil fuel and nuclear fuel electricity generation. In addition, a variable cost function is used as opposed to a total cost function because the assumption of cost-minimizing production inputs is not met. That is, electric utilities are overcapitalized. Therefore, the optimal capital stock is estimated, which is significantly less than the actual capital stock, and an estimate of economies of scale is generated. Evidence suggests that firms are operating on the negatively sloped portion of the long-run average cost curve near the trough. This indicates either slight economies of scale or no economies of scale.
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Rhine, R. Economies of scale and optimal capital in nuclear and fossil fuel electricity production. Atlantic Economic Journal 29, 203–214 (2001). https://doi.org/10.1007/BF02299138
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DOI: https://doi.org/10.1007/BF02299138