An Analysis of Cost Structure Process of Water Supply (The Case Study of Shiraz Water and Wastewater Company)

The main purpose of this paper is examination of return to scale index and economics of scale index that is an argument of being natural monopoly, also investigation on states of technical changes and productivity growth rate in Shiraz water and wastewater company. This is the reason translog cost function is used to estimate the cost function of the water supply in this company. The framework of analysis is in accordance to the iterative seemingly unrelated regression (ISUR) technique. To estimate the parameters of the cost function we have used the quarterly data for the period of 1999-2006 has been used. This company uses four factors of production in its process: labor, capital, raw material and other services. The result showed that there exists decreasing return to scale and no economizing of scale that rejects the existence of natural monopoly in this company. Advance technology index indicated cost decrease as a result of advance in technology and calculation index of productivity growth showed the existence of productivity growth during the surveyed period of time.