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Ad Hoc Production Decisions and Imputed Costs

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1 Author(s)

A simple argument is used to demonstrate that economically ad hoc (but technically efficient) production decisions give rise to imputed marginal costs of all inputs, provided at least one marginal cost is given. These imputed or de facto costs have a number of important uses in problems where there is a high degree of uncertainty or controversy surrounding the true values involved; and their existence tends to contradict the common assertion that ad hoc decision methods avoid the necessity (and responsibility) for evaluating certain costs. A number of application areas are indicated. An example from a recent study of electrical power generation is carried along as a primary illustration of concepts; another example involving a space heating system is considered in some detail at the end.

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Systems, Man and Cybernetics, IEEE Transactions on  (Volume:SMC-6 ,  Issue: 12 )