Estimating a Short Run Cost Function For a Heterogenous Industry

Plant level heterogeneity and discrete production processes can produce problems for estimation. With its smiple production process homogeneous output and considerable publicly available data, the U.S. Portland Cement industry provides an excellent opportunity to explicitly model and estimate some sources of plant level heterogeneity and their importance. This paper presents and estimates a structural model of discrete production decisions by heterogeneous price taking plants.