The network of cost relationships in a multi-product firm is much more complicated than in a single product one and the nature of these relationships has important implications for the structure and size of the firm, the organization and regulation of the industry, and the pattern and intensity of resource employment. The general neoclassical multi-product/multi-input decision framework presupposes that the firm is producing more than one output, but the central question is why do firms diversify into multiple outputs. The answer may lie in the characteristics of the cost functions and the nature of the demand facing the firm. We shall therefore briefly discuss: (1) the main causes of joint production; (2) the econometric techniques proposed for testing the presence of joint production and (3) the implication of joint production for the organization of the industry.
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