CHA PTE R 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
positive is used ... to describe analyses which explain phenomena as they exist ... (14, pp. 8-9).
Production function (via regression) analysis is of the positive category. Once the coefficients have been estimated by means of regression analysis, the calculated function describes how the changes in inputs affect output within the existing organization of production. That isV 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. YetV 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 predict ions depends upon the accuracy of the model