xt79s46h2f9d https://exploreuk.uky.edu/dips/xt79s46h2f9d/data/mets.xml   Agricultural Experiment Station, Department of Agricultural Economics, University of Kentucky 19674 journals kaes_research_rprts_22 English University of Kentucky Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Agricultural Experiment Station Research Report 22 : September l974 text Research Report 22 : September l974 1967 2014 true xt79s46h2f9d section xt79s46h2f9d AN ECONOMIC ANALYSIS OF KENTUCKY'S
LIVESTOCK AUCTION MARKETS
Gerald E. Grinnell and D. Milton Shuffett
I
RESEARCH REPORT 22 : September l974
University of Kentucky : : College of Agriculture
Agricultural Experiment Station : : Department of Agricultural Economics
Lexington

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 C()N'I`EN'I`S
Page
Introduction ......................................... 7
Problem ........................................... 7
Objectives .......................................... 8
Data Used .......................................... 9
Methodology ......................................... IU
Data Adjustment Procedures ................................. II
Functional fiost-Volume l{elati<»nships ........................... 12
l,;il>or (]i~·;tr; ................................... . . . . 12
l*`i~`_i·¢l (ioslrz ................................ . ...... 12
Variable Costs ..................................... 15
'l`otal (Tosts ....................................... 18
Multiple Sale l);1ys per \\'<·r·l; .............................. 24
Analysis ol Results ...................................... 24
Weigh—in Selling Procedures ............................... 24
Weigh—out Selling Procedures .............................. 25
Technological Changes ................................. 26
Conclusions .............................. I ........... 26
Implications for Kentucky’s Livestock Auction Market lndustry .............. 26
Summary .............................,............. 29
Appendix .......................................... 31
Characteristics of Livestock ;\uction Nlarkets in Kentucky ............... Bl
Introduction .................................... BI
General Clinractt·ristics .............................. 3l
l·`inan<·ial Characteristics .............................. 32
(Jost (Tharacteristics ................................ 33
Variable Costs ................................ 33
1

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P°°° Tablc Nu
Fixed Costs ................................. 35 I Q
Total Costs .................................. 36 ul
Income Ch;u‘uct<‘1`isti{(T[ll1`l\S ‘. ‘. 3. 1 . ‘. . ’. ‘. ‘. . ‘ ....‘ . . . . » ....... z ‘ ......... 37 ul
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wc Table Nu. Page
  l Statistical Unit Total Labor Cost - Gross Income Relationships, By Year, Best of Five,
gb and Pooled Data, l965-69 ............................... 13
36
37 2 Statistical Unit Total Fixed Cost - Gross lncomc Relationships, By Year. Best of Five
37 and Pooled Data, l965—G9 ............... . ............... 16
3 Statistical llnit Total \’ai‘ial>lr· (lost - Gross lncomr; Relationships, By Year, 1967,
l968, and l$l(i9 ..................................... 19
4 Statistical Unit Total Cost — Gross Income Relationships, By Year, and Best of Five
Data, 1965-69 ..................................... 22
3 .

 LIST OF APPENDIX '1`ABLES
ram N0. Pm inimc Nt
l 1 Number of Markets by Size Group, 1965-69 ...................... 39 18 S
2 Average Number of Cattle Handled Annually by Size of Market, 1965-69 ....... 40 A
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3 Average Number of Calves Handled Annually by Size of Market, 1965-69 ....... 41 19 I
4 Average Number of Hogs llandlcd Aninially hy Size ol` Marlset, 1965-69 ........ *12 20 I1]
5 Average Number of Sheep and Goats Ilandlcd Annually by Size of Market, 1965-69 , ·1f5 21 ,
I 6 Selected Balance Sheet Entries, Averages by Size of Market, 1965 and 1969 ...... 44 A
7 Average Unit Cost of Auctioneers, Weighmasters, Starters and Ringmen, Solicitors,
Office Help and Other Help by Size of Market, 1965 and 1969 ............ 45
8 Average Unit Cost of Yard Help by Size of Market, 1965-69 .............. 46
9 Average Unit Total Cost of Hired Workers by Size of Market, 1965-69 ......... 47
10 Average Unit Cost of Unemployment Insurance, Utilities, Travel and Entertainment,
and Automobiles by Size of Market, 1965 and 1969 .................. 48
11 Average Unit Cost of Advertising by Size of Market, 1965-69 ............. 49
12 Average Unit Cost of Repairs and Maintenance, Supplies, Bad Debts, Trucking and
A Hauling, Rent, and Other Variable Expenses, by Size of Market, 1965 and 1969 .... 50
A 13 Average Unit Total Variable Costs by Size of Market, 1965-69 ............. 51
i 14 Average Unit Costs of Selected Fixed Costs, by Size of Market, 1965 and 1969 .... 52
k 15 Average Unit Cost of Total Interest by Size of Market, 1965-69 ............ 53
  V 16 Average Unit Total Fixed Costs by Size of Market, 1965-69 .............. 54
  ‘
  ll 17 Average Unit Total Costs by Size of Market, 1965-69 ................. 55
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P*K° 'l`ablc No Pazc
39 18 Spqqillc Umi (losu, Muim md Rank in Rcluuon Lo Total Costs, All Firms, 1965-69
Averages 4... . ............. .. 56
40
19 Av¢1‘;1gL(}1o»>lmoml by Sink ol \l;i1lu;1, I$)(>5r(iI‘ . ................. 57.
41
20 Income Irom Sklu ull Swim L> pm l)oll.u ol (mms Income, ,r\x‘cr;1gcs by Sizc ol` Z\l;u‘kct,
42 1965 ;ml111 ll
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 8
concentrtttron of lrvestock produced rn the when some tructton market openrtors
area served by that auctron; (2) the number of expressed at desrre to make changes whrch Ken
other metrketrng frrms whtch serve the same would rmprove then methods of opergrtton El;
area; and (3) the qualrty and quantrty of lc`;
— servrces provrded by the grven auctron and by H
other marketrng frrrns servrng producers 111 the Objectrves VO;
zuea The only varrable under drrect control of mu
a grven auctton rs qualrty and quzrntrty of The lrrorrrl obtertrve ol thrs study mrs to
servrces offered patrons To maxrmtze total erpprtnse the present perlormrrnce ol hm
13101115, €1"1U€P1€¤€1115 11€€€1 10 C011C€1111&1l€ Kentucky`s lrvestock rrtrction rntrrket lll(lL\5[l> OPC
m2magements` efforts wrlhm the fums, 16, relatrve to tts potentrerl Three rrspeets ol frm
tncrease operatrng effrcrency for er grven pertormunce were constdered: (1) the degree fair
volume of lrvestock and rncrezrse quahty and ol etfrcrency rrtttrtned relutrng to ltrcrlrty CXU
quantrty of servrces offered when the effect rs utrltztrtton und Cconomtes ol stze; (2) the
, to rncrease a ftrm`s market share whrle relcttronshrp between sales promotron costs
marntatntng or reducrng unrt costs An und volume of trzrnstrcttons; .rnd (3)
3L\C[lOl'1 ITl3.I'k€{ Op€l&i[Ol [hL1S 1\C€d$ [€ChnOlOgl(—al Pl()g;gggS“Cng$g_ }·`_[gt0r>
knowledge of Yh€ 1€l&u0u5u1P b€1W€€u uuu consrdered were restrtcted to those xxrthrn the
COSIS 21110 1/01111116 0{l1V€510€k h·111dl€d control of rndrvrdttzrl ftrms, rc, tlrrs study CH]
A knowledge 0f €051·V0lu111€ sought to determtne wtrys lll(lllSll}` COS
Y€1311011Sh1PS also 15 11€C€SS211Y 111 €\’21lu€11111§, performance may be tnrproverl throtrrrlr COI
p€ff01m311€€ of {111115 111 2111 111<111511Y Each rnternal adjustments by errtrrprenettrs ol am
fum should 0P€1al€ K r>1¤¤¤ Of such 5126 [hal lrvestock auctron mctrkets rn Kentucky ·l md
1h€ s11¤r¤1¤¤ €1WY¤é€ {0liu 6051 €u1V€ 15 Specrfrc objectrves of the study were to use mc
tangfm 10 1h€ 101% iuu ¥1V¢1i1€,€ 6051 €u1V€ L11 hrstorrcrrl zrccounttng records of Kentuckyk PK
· 1h€ YT1111111111111 P011"1l 0f Yhf? li1U¤1§ 01 iu 1€i1>1 lrrestock tructtons to: (ll deterrntne .r am
51g111f1€&11i <€0110m1¤$ of 51Z< sh<>¤1<1 1101 bk hornogeneotts rnensttre ol ltrm output: (Bl
1<1¤¤¤1<>1¤¤<1-2 deterrntnc relzrttonshtps lretxxeetr selected md
_ EXCCPL {OI *mPl“m°uuuu’“ Oi $P°U·u costs ttnd volume of elllfllilll tttrnsrrrttorrsz (Gl me
fcédd ¤¤11S¢t111=1¤ <><€¤11‘< estrrntrte rtrtes of return to rnrrrkct opertrtors: ph
whtle changes elsewhere hztxe trltered the and (5) l)I.()‘\LCl mk `rrul ny lmlluptk CO
economtc settrng of Kentucky`s zrgrtculttnrrl SMC (hw PU. Wyck lm uml (.(Ns_ lm
sector A pertod ol renewed growthil ol I Cm
Kentucky's lrvestoek mrrrkct tnrlttsrry mrry ph
have been rnrtrzrted durrng the mrd~l96l)`s DmuUM_d Of
t D1
l The prrmztry source of rltrttr consrsted ol str
r . ;'_”—wW—_ ww I annual reports frled durtng the l965-O?) 10
' IhC [AIC of Olllplll al Whlth Slgl’llfl(3I’\( ·(0h0mlC8 of SIZE _ __ I _ { _ ) {
; BIC EXpI0ll€d 15 of IICCEESIIY ill'} BIDHIAIY d€lC(lY\ll\3ll0l'\ p€r1Od   Edch ln/(’5l0Ck ductlon nliuktl In u
2 made by the researcher based upon hrs pcreerved nouons of
  SOCKCIQT VRIIICS and SBIILIIOHS, Of by all ll\dIVld\.l3.l (OK gI0llp
  V of illdbildllhh) duly authouzed VIH sO(lCly'S p0Il\l(.21l Ol _
. j\1dlCi3l PIOLCSS I0 l€l'ld€( S\.\Lh2ld€(.lSl0l1 ’ " ‘ ’ " ‘  
p g SAS used hue gmwlh mfcm w lmpmvcmcm and plugins, 4'lhrs irttrludcs the) long run optron ol` rernotmg ()l\("h 0
a Y l'\0l I\€(€5S3{lIy changes lll llllnibfi of [ll m* lcsounlcs from thc Industry M
Q it
l t
  V
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 9.
is Kentucky wrth the Packers and Stockyards though prone to understatement by omrssron
ih Drvrsron, Consumer and Marketmg S€TV1C€, Ol costs, closely approxrmate long run average
U.S. Department of Agrrculture These cost functrons postulated by economrc
reports contarned rnformatron on frrm assets, theory
volume of lrvestock handled, rtemrzed costs, The statrstrcal method for derrvrng cost
and revenue from varrous sources After functrons may take two basrc forms Frrst,
edrtmg, the reports of 42 frrms were usable hrstorrcal cost-output data from a srngle plant
U) AddIlI0l]dl ll`1l0ImrtllOfl was Obtzilrted rn whrch rare Of ()u[pu[ rg ygrrcd Oygr rrmg
Ot from personal observatrons ol l1UCllO¤m21Yk€l vvrthout alterrng plant srze or changrng
ly operatrons ID Keflltleky Lind other St21teS and reghnology may bo used [O dgyclop ghorprun
Ut from drscussrons wrth auctron operators, cost curves; long run cost functrons may be
°° farmers, buyers, and Unrversrty of Kentucky developed rf plant srze rs varred Second,
ly extensron specralrsts hrstorrcal cost-output data from a
h° cross-sectron sample of plants of varyrng srze,
’l” each havrng srmrlar accountrng methods
.3) Z\lr·thodology srmrlar technology and equal managerral
”” abrlrty, may be used to estrmate long-run cost ’
h‘ To rdcntrfy key f&Cl0fS of {lim functrons Cost functrons usually are
dr eltrcrency, frrms were grouped by srZe Unrt estimated wrth l¢3_5t gquares regresgron
U}- cost and rncome from varrous sources were analysrs Short-run cost functrons generally
lbhp computed for each type of COSI Of IHCOITIC are not estrmated because 1'leCeS$8.ry time
Ut and averaged by year Rates of f€lUf¤ I0 serres data are not avarlable Avarlable cross
ll 4 market operators (profrt per dollar gross sectron data, generally lack rnformatrorr
u”° rncome, prolrl per dollar Hel Woilh, and needed to determrne whether sample frrms are
Ye proht per dollar rnvestmem) were calculated operatrng wrth least cost methods of
·‘ and averaged by srze group 5 productron and degree of plant utrlrzatron An
(gl Cost ftmclrons of lr\'eSloCk BUCUOU addrtronal lrmrtatron of accountrng data rs rts
Wil markets may be estrmated usrng the syrrthetrc hrstorrcal perspectrve If these lrmrtatrons can
(Yll method or the statrstrcal accountrng method be ot ercome or judged not crucral, long run
(ll The synrhetrc method, whrch requrres that cost iunctrons estrmated by the statrstrcal
ms; physrcal rnput output relatronshrps be accounrrng method6 wrll be useful and may
rplt converted to cost estrmates, calls for detarled closely approxrmate theoretrcal curves
trme and motron analyses of productron of Defrcrencres of typrcal cross sectron
each product usrng each avarlable productron sample data are oxercome, rn part, when
process at alternatrve rates of output for each supplemented wrth multrperrod observatrons
of several plants drfferrng rn srze from each sample lrrrn. When cross sectron
Drsadvantages ol the synthetrc method are rts obserxatrons are obtarned by selectrng the
;l ol strrngent data requrrernents and the rnabrlrty least umt cost observatron of each frrm from a
Lot) to apply statrstrcal tests oi relrabrlrty Cost trme serres of observatrons, the probabrlrty rs
t rn functrons estrmated by the syI1thetlC IT1CthOd, rncreased that selected {KIDS 3.Ie "caught"
operating wrth least·cost methods of
productron and that they are near capacrty
(mc.5 5P¤¤iu. eucfrncu as the rerum to owners for management, _M_ W _ __ _ _> __ 4
owners labor, and usk, was related to total investment as
“cu 35 I0 nfl worth because (ht f0lmCl is m0IC appropriate 6R¢5€3|(h (0§(§ genekally BIC lT\\.lCh IOMFCI for lbf sraustrcal
for mrerfum compamons nccountmg method than for thc synthetic method

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(nc ncan {hc b0u0m of Lhc ShL)lllUl]Ll\ClLlgC xdluu quunuty oi >LlVl(L> ucquuui mu plow
101alc0>1 cuuc) Thus cum ll$SOC1dLL(l\\'llll lmmlle muh nypk ol Jlllllldl »\mm.nl umn, Nom
the ¤c$zes$10nt4l1.1cy .s1nm11mL€d l>.¤>u¢l upon 11uum€d .1b0\»c allow .ll]Il1l.\lb In llI\.\L(L,`[)l.ll)ll` Mlwugln unckly u>u1)_ gm;
_ c5um.u¤0n 0i a IOIIS xun d\VClglgC con i`uuc11011 whglc Jlllllldl umu ¤lLulopul by xuaylxnuq mum
wh1Ch ¤1pph€$ K0 {mms \\/hlCh Op€I.LllC ll} lhé nach spcuu ‘\.l,Ll>I(llllg in xls (`()llUII)Ulll)H ln ddd
same memncx L15 the Bamplc iums Smcc mul emu (on 1m.¤lv.un.1l>1L (mu) ])l(>(lllk¢~..l bdllu
nucucms m Iicmucky gcucmlly hold iflgllldl nnunsnnxc wl output ulnch n> .1 lummm ··I {mm
saicb 0nly one day pcs wC€k this Cu1\€ would cmu Smcc am .u1c11<>11`> l.lllH l.lI&J~ ullgm mln hu}.
1101 apply L0 {.1m> wulh mL1Il1pIC sdlii d‘1y> pdl qllalllllly ol >Cl\`l(§L> uculul lo h.1mHL huh Oppg
wqck Bnscd upon thc followmg ussumpuom, type ol .mmml, www nmmnc xx .1» wlu uml .¤» O; U
A long run avimgd (Osh Cunvé dppl1C21bl€ for .111 LlpplOpll.llQ ll1C.l¤lllC oi lum uunpua Hgu]
muluplc $416 d.1y> pcx mick was symhcsuccl
hom thc dccoummg (ima 0f lI]d1Vl(iL1Lll fums. sdm}
Dann z\dju»um·m Pl()((`(lllll'> K xh
/ 1 Ioml cosh can bc catcgouzcd LICCLIIALCIY appl
d>ilXCC1 On varmbié Smu ALl(l1OI1>` Lumunl npmu lnlui unl; [hh
2 DOLlbhl1g Opélallmg UIUC PGI wcck Lhc Puckcw uml SL¢mky.11al> ,·\¢ium11>11.m¤»11 md`
(holdmé sales Lw0 days per wéék 121lh€1 (uc mu (lL>IgI]L.d im um.nlum Ltllllwllllx PML
mhcm cme) doubles 0uLpuL Qvolumc of .1l1Lliy>C>, un cdu111$p1<>¢cdu¤; \x.1> (`x\lQHx(i lv {O,
hvéswck handled piif wéfik) and [Ow} nmpnmc Lhc u>clulm>» ol 1}1L¤Lp¤>¤1» \\`hk11`; Mu;
varxablc c05¤.> whxlc lcaung wml f1X€d tum`s xcponw were mmlly unu».1blL ·—1 [ht,
COsl> Ullihallgéd un.1xz11lablc dunmg one on umu ui xlu Pm yL`u~ [mp
5 Eauh f¤rm`¤ p€rC€Hlclg€ d1Sl11Dul1011 of mcludcd Ill 111; nudy, Lhq lnm um (hmmm mq;
hvC>lOck, by lypé of Hfllméll, l€mZt1¤> i`mm Lh; .umly>L> In mum; nr1»1.nmk~ mdy
CO¤>ldm ds |1vésl0Ck \’0lum€ 1l1C1`€é1S€S mcompluc ncpous uu; lU.l(iL u~.¤hl;, \ _ [O"
whkn inbox costs neu mu ucn1¤zui In pur
Oulpul of UV€Sl0Ck éiUCI10¤ mbUk€iS IH function m lh; mpmu, (osu uma LompL1Lui nmr
Kcmucky dnffcxs accondmg LO thc m1X of [un cz1ch1‘1l><>¤ iuxmeuon .md umn .411 mum ud:
hvcymoek handled by each Smcc development obuouhly xqulkuzui hum m>¤l made ;1> A w01k¢;¤¤ www hnui Rbpum ml
ammai hdndléd IS lmp0sSlbl€ Wllh éiCCOuHl1¤g covcnng lcss [hell] 12 Illlllllhb war; p¤<>1.uLd no $m¤
dana? 4 h0m0gcnc0u> m€&¤UI€ of Output An annual b4>1s» Rcpoxncd uuml Lxpenwm. UW
appucablc L0 all auguom m Kentucky was whnch mcludc dLp¤cuuL1<>11, mxw, Illnllhllllu. *5*
needed Your mc(1>u1&s,0{ ourputcmployédm rcptuns uml m411nLcmu1¢e, ¤>pp<,»¤1u1u1; ww PW
p1 >'L1C|1€> of &L\CUO¤ méifkfil COSIS M6! and pmiu LO Lhu lmsm, new mul Lo L}ll(.lll.ll\ dm
_ U) g10>> 1¤€0m€; (2) value Of 11*/€5l0Ck proper Ly values (u¤puu4l>l¢ Amd
{ handled; (3) 1¤V¢$im€¤i§ and (4) animal UUNS mmdcpnccnable) amd .nppmopx1(uL emu
  An approprmlé m€&>L1l€ would I€U€C\ f\¤$LllT`lll1g thzu lnusmyk Llllk,lll)ll 111(uku
l Y accumrcly [hi quéimliy of 561*/1€€> rcquucd rv cnucplcmuxb seek muxnmum wml muum
i hdlidlé €3€h [YIM of dI11m¤lW1ih0Ul!€{€¤€1\C€ from the cmploymgm on mh oi xhcu KL
  I0 ih€ CONS of P¤0V1d1¤g 5UCh SCYVICCS LlVdllilb1(, l'(;S()Lli((.> And l(QC(>glll/4lll_g 1l1.n1 ¤.1le> "
  . Néllhéi Véil\1€ of l1V6S\0Ck DOY 1¤V€Sim€1N ol nctum Lo .1L1c1n<.> .uu 8G¤
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i I " ` "   bms Wh1Ch may hc m_]ccu:d mm [hc 1(,]>0l\~ m
Q ' ?$¤¢hf¤¤¢¤¤¤·-¤¤1dhw|¤¤¤¤¤¢<1¤¤•=¥¤1¤¤#¤¤¤¤¤ by Cmrcpncucuxs lnucmpung uq 111;1;;1>¢. khaki H
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lh pmht, subject Io tht tIgL1ldl0lY COYISUHIUI to dctttmmt tht natutt ol lout cost volumc
Hb N()l1tILl(ll()l] Illtlll (l LlS>ClS (K g l2l.IITlS, SLOIL'5, Hlduonshlph;   umu Loud COSLS of hHLd
Ol gthlllgs Ittcuullls, ulllllctllts ol tltpostt, gmd ]u[)(),;   uml low] {ucd (OSB; (3) uml loud
’dl· g()\ t I llllltlll l)(>Il(l>) 2Ill(l g()()(lWlll Llllcl \~dyld|r)]l L(,>L5; and (4) unit Loud C()>L>
Hlh l1()IlaILILl1Ull ltlillk (l (Q()Sl> tlllll Ill(Q()ITlL \Nt1t‘ '["W() LyP,_5 Ot lkg]L>>1()n (imdb bh ukrk
lh dtlttttl ltom tht IkpOIl> whttt posstblc Cmploykd [Just, Sptcmc urm com \OlumC
·" A 5AldIlt‘s ol ()WllkI> tlll(l ()lllCCl> WLIC IL‘I'1'l0\'C(l lcldtlonshlps VVLIC (.S[lma_[Ld using
l*l ftgm the Itp0Il> l)CCdU5C Khky pIUbiiblY Show Ob$CIVB.lIOI'l$ lIO1’l'l C3.Cl`1 yiiil dl’lCl Ubcsl of  
llh lllllt COI I Cliil l0l'l Wllh Cflll LPICDCLII dajag In Scpayalc modcls   54yC&I· data also
dll] ()ppOl[uI]lly CO>l> tllld llndy l(lll`C[ pl`()V]Sl()Y]b WLIL pogltd lf 21 Spkclflc Cost `Olu¤·lC
l -*~ ol txtsttngg tax laws and/ot tults ol thc federal yclauqmshlp had [hc Same hmummil {mm
ttgttlatoty ·igUlt§' each ol the 5 ytats and tf tsttmatts of tht
Rtasons lot tltlt llllg l1lmS ll'Um thc slope parumcttts wut not 5l§%I`I1l`lCLiI'lll}`
samplt .ut tmpotttmt Il Lllmlflalcd LIUCIIOIIS dtlfctcnt (.95 ptobabtltty ltxcl) among stats
txhlbtt chatactt Ilsllcs WhICl\ ClCV12il€ Second, tn analyztng umt total costs, the
appitcmbly ltom lh0>L of llfmS kméllyltd 1¤ ttmc scttes of cross-scctton obsttvattons wett
"lh Ihts sludy Incomplttc ot lIlC0l'l>1SlCIl[ I‘cpOIlS pooled m a covatlancq rggtcsslon model m an .
`llm mdy ttsult tlUm UYIPIUPCI U·CCOUnUng HIICHIPI [O ICITIOVC [l1C cllCC[S ol (.XClLlClCCl
mls p;o(tdults_ lack ol kttoxsltdgc ol OI ClISICg8ICl vattablcs systcmattcally tclatcd to tlmq and
·l I" {Ol llllllg l¤ql111¤‘IT1¤fHl>. Lilld/01 POSS1bl¤ mttrltrm vattattons Hom t‘\`cI', tht- cox attance
*11 *‘ tllltlllpls by I Ililtpltlltllis to CtiIl"lOI.Il`l8gc mgdt l was found lngpptgplmtk dud lybuhg mg
Pl ll'l&II IILIL lllltllllaltll (II lIlC()I1]L‘ p()51llOIlS ]]()[ Igpgytgd  
L‘H` IIHPIOPQI LILL()LlIlllIlg pl'OCCdUlLb Lind SCH[[[_y d1a_g1·a_I·nS lndlcalcd that
‘l“l ‘hCO*hPhl” kh0“hdE* OI hhhlé Wquifhmihw cost-xolumc rclattonshtps were cutvtlmtat and
llL*` l'Tldy bk Ll>$0CldlLCl \\'l[h small llI'ITlS, flIITlS \V][h that Cach Iclaucnshlp Could bL Iulkd yxlth
* * 10** Pmhh (0* lO>5*$l~ Jhd films ~~Ih¤¢h ont ol lout tcgttsstonmodels,;achl1ntat’m
lll pIO\lClL tl >&QOIlCldIy 5OL1IC£ ol IHCOIDC [O [hg palarnk [L15   1Cgx&S51OH modlls
.llttl LHULPILITLLIIS hXClLl3lOl`l ol l1IIT]S {Ol [hCSC' Poslulalcd yyclcj
\llcI I(.3.>OI”l> pllllbdbly ttsults ll'l Lil] Ul'lClLl'S[Hl€Cl
Mgt numbtt ol small lums and posstbly overstated
.otts net tctutns (ot undttstated losses) among
ll ul small aucttons Exculston oi ittms btcausc of
]\L>_ lll5L1lllClLI`Il ClI5d.gSIL_g.1LlOI] ol data \\’ElS _-Q; l-   _ rn ' W W
WM asbumcd [O bk. unidzucd [O fum SlZC` lc "Bcst of o data eonststs oi the least untt total cost
obsctvauon of each of the iz fttms {tom the fue yeat umc
(_ll`[ polk lll ltll Ll I Ol ll`lLl> bk lllg l'21IlClOIT1lY Seng,
dt I
ll`lll B llbuud 10Ihe ltneat model used tsas: \l-I = a + tl + dj +
tlllll bxu • uu, tthttc lll] teptesents unu total (0>l> ol thc tth'
· · Y » · · ` h h'
l‘unctton;tl (.ost·\ olumc Rclattottslttps mm "‘ ’°‘" J' MJ ls m` annual gl,°” m`°m° Oi ` C H .
k {ttm tn yea: J, a and b ate constants ovet all tttms and all
It `ti ycats, tl teptescnts {ttm constants, dj teptesents yeat
wm SL ul [H dl_lw_u“5 wk H. (mmm-u(u.(l tonstants, and uu ts an cum tctm. Ihts mocltl has Iounu
I h K1 U 1, _ _ 1 { Q I V V V _ tnapptopuatc because tht: Iuntttonal ttlauonshtp between
I MH ` U 5 un'! (Ohh ‘m( $0* mtohh »° W }L·h~ nmt total costs and gtosstncometatted among years XCR}
mtu, · · constants (dj) made an tnstgmiicant tonttlbutlon and the
l fum onstants lc) x etc tottclatcd mth one ot mote
s till. Bbtoss IHLOIIVI mtlutlnl tommtsstonmtomi', ptoftl OI loss OH mdcpgndfnl wunlblc; lh': hue; mmuuqd [ha; [hg
Hldu mllkfl suppott acttvtucs, ptoltt ot loss on lCL‘d aItL0\II\l, cocfhclcms of lcglcssion md not mflcq 3 ’pu;g' um; `
mmah mluc`l· and "“"°“‘m°°“’ umd dchl ‘°“°‘"°"‘· cost—gt0ss tncomc tclationship Pot addttlonal cxplanatton
)0ll> Income ftom wsnmng mathmcs, sale of mvcntoty Ol 2\Ss0lS. Stoll] pp ljl 170
Illtll <‘It») tntome oi the aucttons

 12
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c1101> 01 ($[lI'I11lI€. {O1 cmuc models, 111111 1“`1X1·(1(111>1>12 Ld _
judgmg e1 m0d11 10 have SPCCIIICALIOII b1;1s E1
when L1 >1g11111ca111 1xp1e111;11o1‘y vauablc 11 us l)il1£l 111 .·\1>1>111111x 1.11111 111, 11 Y11.  
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 15
model 2 The second explanat