Estimating Capacity Utilization in Iranian Pharmaceutical Industry: Pharmaceutical Companies on the Stock Exchange, 2008-2012

Abstract

This study aims to measure the production capacity and capacity utilization in pharmaceutical industry. The capacity utilization is the ratio of actual production level to the potential production level which shows the gap between real production and production capacity. Method: Through econometric methods, the short-run translog cost function is estimated with the cost share function of production factors using iterative seemingly unrelated regression equations (SURE) as a multi-variable regression presented by zeller. Findings: The capacity used during the study years has had a downward trend. The capacity utilization measured by industry weighted average had also a downward trend and its amount has always been much less than the industry simple average during the study years. Industry's capacity utilization average in five years study is 57% while the average capacity utilization measured by industry weighted average method is 37%. Conclusion: To enhance the economic capacity, the proper use of resources, creating a desirable economic structure and having a system of efficiency in industry are required. In spite of the large amount of unused capacity in pharmaceutical industry, there is no need for further investment except in new fields and it is obvious that increase in investment leads to the changes in capacity utilization.