Cost Function in Railways

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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. When the relevance is known, the right data can be used and the dataset can be interpreted. This interpretation is useful to make an appropriate estimation of the cost function related to the provided data. After analysing the data, there will be a cost function (Cobb-Douglas method) developed based on regression of the dataset. Finally, this tutorial will be concluded. Cost function analysis is very helpful in providing the appropriate information needed to make strategical decisions for the company. From the cost function we can decide whether the firm can produce multiple outputs or it is cheaper to offer the same output by separate companies. Of course the importance of this kind of decision increases when we consider the environment in which the firm will operate. For example if the company will be privatized or regulated. Cost function analysis in the railway industry can be done in different ways. One can use linear and Cobb-Douglas type cost functions or more flexible functional functions or even efficiency analysis. Theoretical Background

A cost function is a function that sets out the costs of the capital goods and other production factors against the received output of the costs made for production. The second...
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