The Italian railway company, FS, is a public transport operator. Thus, it is constrained in its
choice of output levels to provide the required volume of services at the tariffs in force. In other
words, its output can be considered as exogenously determined. It follows that, if the railway
company attempts to maximise its profit, it must do so by minimising the cost of producing the
required services. In a railway context, it often makes sense to assume that the capital stock and
hence production capacity is fixed in the short-run. In this case, it is necessary to estimate a
variable cost function where it is assumed that costs are minimized only regarding the variable
inputs of production.