CHAPTER I I
METHODOLOGY
Regression, Production Functions, and Linear Programming
Positive vs. Normative Analysis
By normative we refer to the course of action which
ought to be taken...when (a) the end or objective
takes a particular form and (b) the conditions and
restraints....are of a particular form....the term
pos iti ve is used...to describe analyses which ex
plain phenomena as they exist...(14. pp. 8-9).
Production function (via regression) analysis is of the positive
£ ** r if
category. Once the coefficients have been estimated by means of re
gression analysis, the calculated function describes how the changes in
inputs affect output within the existing organization of production.
That is, the production function equation defines the relationships
between input and output under the particular system of production in
question.
Similarly, the predictive aspect of the production function is
positive in nature. Using the production function one can predict the
effect on output of changes in the independent variables. Given the
specified functional relationship one can estimate what would or will
be the results if certain actions are taken. Yet, although one is
dealing with future results, the answers obtained are based upon the
assumption that the existing firm structure will not be changed. The
accuracy of the predictions depends upon the accuracy of the model
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