Simultaneous Estimation of Markup and Return to Scale in Manufacturing Industries of Iran

The current study is an attempt to estimate markup and return to scale of 19 two-digit ISIC manufacturing industries of Iran, simultaneously, in accordance to Solow Residual and Structural approach, during the period 1995-2007. Based on Solow Residual approach, the neoclassical assumption of constant return to scale is approved within 95% of manufacturing industries; however in 84% of industries the price was higher than marginal cost significantly. Based on structural approach, 53% of manufacturing industries of Iran are experiencing increasing return to scale significantly; however, in 79% of industries, the price is higher than marginal cost. According to the criteria share of the cost of inputs in income as a theoretic criteria for return to scale-markup ratio, in 53% of cases, structural approach estimates this ratio closer to the reality.