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According to the neoclassical approach, input prices as a measure of resources scarcity induce firms to cost-minimizing and efficient allocation of recourses. But when the prices are distorted, the effective competitive inputs are used inefficiently and have resulted in under- or over-utilization of production factors relative to their endowments or allocative inefficiency. In this paper, the shadow cost approach and system of equations are used to estimate allocative inefficiency using the Iran's manufacturing data over the period 1976-2006. The results show that there is strong allocative inefficiency and increasing cost of production of firms in Iran's Manufacturing Sector.

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Although many firms enter into the market in completely different sizes, recent facts show that the size distribution of new-entrant firms tend to more homogeneity than disparity over time. This is known as industrial dynamics in the literature of industrial economics. The dominant view in this area is learning by doing, in which firms can enter into an activity at any sizes. However, they will learn over time that which size of the market is effective enough to enable them to remain in the market in the long run to give them the chance to adjust their size. Meanwhile, firms that failed to learn it in a reasonable time will have to exit the market. Therefore, the most significant objective of this paper is to review the way of size distribution in firms in arrival time and its adjustment over time in Iran that is not so far taken into consideration well. This subject can have prestigious application for new-entrant firms as well as increasing their lifetime in the market by decreasing adjustment time for incumbent firms. A descriptive-analytical method has been applied for doing this research. The industrial firm data collected by Statistical Center of Iran (SCI) in ten consecutive years are also used for this purpose. The results indicate that the average size of new-entrant firms is smaller than that of incumbent ones. In other words, manufacturing firms in Iran are born smaller in size in comparison with incumbent firms. Additionally, broad size dispersion of the firms at arrival decline during the learning by doing in most industries and tend to more homogenous size distribution. The results have also revealed that although in most selected industries the average size of new entrants has been increased, the intensity of increase is separable in three groups: 1. firms smaller than industry average, 2. firms with close size to the average industry size and 3. firms larger than industry average. Average growth of firm size located in the middle range (group 2) is about half of this measure toward group 1. However, average growth of firm size located in larger groups (group 3) is about half of this measure toward the group 2. This subject as the most essential findings of the industrial dynamics in the economy of Iran indicate that -unlike the usual- small and medium criterion could be modified to suit the type of industry or be influenced by time. Finally, the findings of this research imply that applying absolute definition for a variable conception (small, medium and large firms) cannot be considered rational.