Some Comparative Aspects of Production and Profit Functions: Empirical Applications to a Punjab District

Main M. Aslam


The estimation of technical coefficients of production is a
prerequisite for the construction of an agricultural production model.
The production functions, introduced by the classical school and
developed extensively by the neo-classical writers, have been frequently
used in deriving the technical coefficients. But the problems posed by
the management factor [8] and simultaneous determination of variable
inputs and outputs by the farm firm [5, 10) are quite serious and have
generally led to biased estimates. On the other hand, the profit
function [14, 19] has been developed as an alternative to the production
function. Since the arguments of this function are normalized input
prices and fixed inputs which are exogenously determined, the bias of
simultaneous equations is avoided. However, the profit function may be
difficult to estimate due to data problems. For example, what is the
wage rate of agricultural labour and how is it imputed? Also, data on
product pi ices are not easily accessible and some products may not be
marketed at all, especially, in developing countries.

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