Cost Function in Railways Essay

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Introduction
This assignment focuses on the cost functions of the Dutch Railways. In this tutorial will be an estimated cost function developed for the Nederlandse Spoorwegen (NS). This cost function (expressed in Dutch Guilders) is based on the period of Year 1951 till Year 1993. This due to certain developments that made it more difficult to come to a good approach of a cost function. Based on the cost function, developed in this tutorial, there will be an answer provided on the question whether is it efficient to allow competition on the tracks.
First we will define a cost function related to the NS. Then we will describe the important variables. After defining the cost function, the relevance of the cost function will be explained. …show more content…
In Flexible functional forms the elasticities of factor substitution are unrestricted. One type of flexible functional form is the translog specification and another is the generalized Leontieff (De Borger, 1992).
Generally the research methodology of previous cost studies on the rail industry can be divided into three groups. One category is the total-cost approach which assumes that a firm can quickly adjust fixed input to optimal size. (Caves et al. 1985).
The second category uses the variable cost function and is named as the variable cost approach. (Savage 1997 and Braeutigam et al. 1984) This approach assumes that there is disequilibrium with respect to the stock of way and structure and that a variable function cost is more appropriate.
The last approach is the variable- cost with network approach. Studies of this type include Friedlaender and Spady (1981), and Friedlaender et al. (1993). Its assumption is that the network variables show a tendency different from the property satisfied by fixed input factor.
Introduction
This assignment focuses on the cost functions of the Dutch Railways. In this tutorial will be an estimated cost function developed for the Nederlandse Spoorwegen (NS). This cost function (expressed in Dutch Guilders) is based on the period of Year 1951 till Year 1993. This due to certain developments that made it more difficult to come to a good approach of a cost function. Based on the cost
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