... that universities behave. This paper is consisted by nine steps: observation, data, theoretical model, empirical model, estimation, interpretation, hypothesis testing, prediction/forecasting and application. Observation: As it has been mention in the introduction we consider that universities operate as firms with the difference that their aim is to minimize their costs. Because we consider the universities as firms then there must be an input and an output procedure. Inputs are the human capital (with the use of capital equipment) that provides the teaching and research and output are the research results and the students that they get the education. The funds for a university may come from government, tuition fees payments by students, private firms or other organizations for a research project or from charity. Let's take for example the University of Hull. From the Financial Regulation web page (source: http://www.hull.ac.uk/finance/finreg.html#1, section E 6.7) we can see what kind of expenditure / costs ...

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