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Some Theoretical Issues in the Measurement of Capacity

L. R. Klein

Abstract

Alternative approaches to the measurement of capacity are possible. Economic aspects of capacity measurement, as contrasted with pure engineering considerations, involve the introduction of cost considerations and limitations imposed by interdependence of different sectors of the economy. Some approaches to capacity measurement in terms of cost functions are explored, particularly as properties of a probit total cost function. A method of aggregating individual capacities, taking into account the interdependence of an input-output model, is outlined. Capacity measures, so obtained, are useful as descriptive statistics of economic efficiency and as explanatory variables in modern theories of investment behavior.