Agricultural Production Economics

1 Agricultural Production Economics SECOND EDITION. DAVID L. DEBERTIN. Agricultural Production Economics SECOND EDITION. David L. Debertin University of Kentucky First edition 1986 Macmillan Publishing Company, a division of Macmillan Inc Second edition 2012 David L. Debertin All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, without permission from the publisher. Pearson Education Corporate Editorial Offices One Lake Street Upper Saddle River, USA 07458. Library of Congress Cataloging in Publication Data Debertin, David L. Agricultural Production Economics Bibliography:p 1. Agricultural Production Economics 2. Agriculture Economic aspects Econometric models 1. Title. 1986 '0724 85-13918. ISBN 0-02-328060-3. Preface (Second Edition). Agricultural Production Economics (Second Edition) is a revised edition of the Textbook Agricultural Production Economics published by Macmillan in 1986 (ISBN 0-02-328060-3).

2 Although the format and coverage remains similar to the first edition, many small revisions and updates have been made. All graphs have been redrawn using the latest in computer imaging technology. The book contains a comprehensive treatment of the traditional Agricultural Production Economics topics employing both detailed graphics and differential calculus. The text focuses on the neoclassical factor-product, factor-factor and product-product models, and is suitable for an advanced undergraduate or a beginning graduate-level course in static Production Economics . Chapters also deal with linear programming, risk and uncertainty and intertemporal resource allocation. Two new chapters have been added dealing with contemporary Production theory in the factor and product markets. A basic knowledge of differential calculus is assumed. Individual chapters are largely self-contained, and the book is suitable for instruction at a variety of levels depending on the specific needs of the instructor and the mathematics background of the students.

3 David L. Debertin University of Kentucky Department of Agricultural Economics Room 410 Ag. Eng. Bldg. Lexington, Kentucky, 40515-0276. (859) 257-7258. FAX (859) 258-1913. Agricultural Production Economics SECOND EDITION. Table of Contents Chapter 1. Economics The Logic of Economic Economic Theory as Economic Theory Versus Economic Model ..3. Representing Economic Relationships ..4. Consumption Versus Production Microeconomics Versus Macroeconomics ..5. Statics Versus Economics Versus Agricultural Economics ..7. Agricultural Production The Assumptions of Pure Why Retain the Purely Competitive Concluding Questions for Thought and Class Discussion ..12. Chapter 2. Production With One Variable Input ..13. What Is a Production Function ..14. Fixed Versus Variable Inputs and the Length of The Law of Diminishing Returns ..19. Marginal and Average Physical MPP and the Marginal Product A Neoclassical Production MPP and APP for the Neoclassical Function.

4 28. Sign, Slope and Curvature ..29. A Single-Input Production Elasticity ..33. Elasticities of Production for a Neoclassical Production Further Topics on the Elasticity of Production ..36. Concluding Problems and Exercises ..37. Chapter 3. Profit Maximization with One Input and One Output ..39. Total Physical Product Versus Total Value of the Product ..40. Total Factor or Resource Cost ..41. Value of the Marginal Product and Marginal Factor Equating VMP and MFC ..43. Calculating the Exact Level of Input Use to Maximize Output or General Conditions for Profit Maximization ..51. Necessary and Sufficient Conditions ..52. The Three Stages of the Neoclassical Production Functiom ..52. i Further Topics on States of Production ..56. The Imputed Value of an Additional Unit of an Concluding Problems and Exercises ..59. Chapter 4. Costs, Returns and Profits on the Output Side ..61. Some Basic Simple Profit Maximization from the Output The Duality of Cost and Production .

5 71. The Inverse of a Production Linkages between Cost and Production Functions ..76. The Supply Function for the Firm ..77. Concluding Problems and Exercises ..79. Chapter 5. Production with Two Inputs ..81. An Isoquant and the Marginal Rate of Isoquants and Ridge Lines ..93. MRS and the Marginal Product ..95. Partial and Total Derivatives and the Marginal Rate of Substitution ..96. Concluding Problems and Exercises ..100. Chapter 6. Maximization in the Two-Input Case ..102. Introduction to Maximization ..103. The Maximum of a Function ..104. Some Illustrative Examples ..105. Some Matrix Algebra A Further Illustration ..111. Maximizing a Profit Function with Two Inputs ..112. A Comparison with Output- or Yield-Maximization Criteria ..115. Concluding Problems and Exercises ..117. Chapter 7. Maximization Subject to Budget Constraints ..118. The Budget Constraint ..119. The Budget Constraint and the Isoquant Map.

6 121. Isoclines and the Expansion General Expansion Path Conditions ..124. The Production Function for the Bundle ..126. Pseudo-Scale Lines ..128. Summary of Marginal Conditions and Concluding Problems and Exercises ..134. ii Chapter 8. Further Topics in Constrained Maximization and Simple Mathematics of Global Profit Constrained Revue Second Order Interpretation of the Lagrangean Multiplier ..143. Constrained Output Cost-Minimization Subject to a Revenue Application in the Design of a Cash Rent ..148. Shared Rental Arrangements ..149. An Application to an Acreage Allotment Concluding Problems and Exercises ..155. Reference ..156. Chapter 9. Returns to Scale, Homogeneous Functions, and Euler's Theorem ..157. Economies and Diseconomies of Size ..158. Economies and Diseconomies of Scale ..159. Homogeneous Production Functions ..161. Returns to Scale and Individual Production Elasticities ..162. Duality of Production and Cost for the Input Bundle.

7 164. Euler's Concluding Problems and Exercises ..169. Chapter 10. The Cobb-Douglas Production The Original Cobb-Douglas Function ..172. Early Some Characteristics of the Cobb-Douglas Type of Function ..174. Isoquants for the Cobb-Douglas Type of The Production Surface for the Cobb-Douglas Production Profit Maximization with the Cobb-Douglas Production Duality and the Cobb-Douglas Production Constrained Output or Revenue Maximization ..184. Concluding Problems and Exercises ..185. Reference ..186. Chapter 11. Other Agricultural Production The The Transcendental Production Function ..189. The Two-Input Illustrations and Applications of the Cobb-Douglas with Variable Input Elasticities ..196. iii de Janvry Polynomial Concluding Problems and Exercises ..198. Chapter 12. The Elasticity of Substitution ..200. An Introduction to the Elasticities of Substitution and the Cobb Douglas Function ..204. Policy Applications of the Elasticity of The CES Production Function.

8 207. Concluding Problems and Exercises ..213. Chapter 13. The Demand for Inputs to the Production Process ..215. A Single-Input Setting ..216. The Elasticity of Input Technical Complements, Competitiveness and Input Demand Functions in a Two-Input Setting ..222. Input Demand Functions Under Constrained Maximization ..225. Comparative Statics and Input Demand Concluding Problems and Exercises ..231. Reference ..231. Chapter 14. Variable Product and Input Prices ..232. Relaxing the Assumptions of Pure Variation in Output Prices from the Output Variation in Output Prices from the Input Side ..236. Variable Input A General Profit Maximization Statement ..239. Concluding Problems and Exercises ..242. Chapter 15. Production of More Than One Production Possibilities for a Society ..244. Production Possibilities at the Farm Level ..245. General Relationships ..247. Competitive, Supplementary, Complementary and Joint Products.

9 249. Product Transformations from Single-Input Production Product Transformation and the Output Elasticity of Concluding Problems and Exercises ..258. iv Chapter 16. Maximization in a Two-Output The Family of Product Transformation Maximization of The Isorevenue Line ..261. Constrained Revenue Simple Mathematics of Constrained Revenue Maximization ..265. Second-Order An Additional Example ..270. Minimization Subject to a Revenue Constraint ..273. An Output Restriction Application ..275. Concluding Problems and Exercises ..277. Chapter 17. Two Outputs and Two Two Inputs and Two Outputs: A Basic Some General The Constrained Maximization Problem ..284. An Intermediate Product Concluding Problems and Exercises ..290. Chapter 18. General Multiple-Product and Multiple-Input Conditions ..291. Multiple Inputs and a Single Many Outputs and a Single Input ..295. Many Inputs and Many Outputs ..296. Concluding Problems and Exercises.

10 300. Chapter 19. Enterprise Budgeting and Marginal The Development of an Enterprise The Level of Output to be The Variable Input Levels ..305. The Fixed Input The Economies of Size and Farm Budgets ..307. Price and Output Concluding Problems and Exercises ..308. Chapter 20. Decision Making in an Environment of Risk And Uncertainty ..309. Risk and Uncertainty Farmer Attitudes Toward Risk and Actions, States of Nature, Probabilities and Consequences ..312. Risk Preference and Risk, Uncertainty and Marginal v Strategies for Dealing with Risk and Uncertainty ..318. Insure Against Contracts ..319. Flexible Facilities and Equipment ..319. Government Programs ..321. Concluding Problems and Exercises ..322. Reference ..323. Chapter Time and Agricultural Production Processes ..324. Alternative Goals of a Farm Manager over Many Seasons ..325. Long-Run Profit Accumulation of Wealth ..326. Other Goals ..326. Time as an Input to the Production Time, Inflation, Interest Rates and Net Discounting Future Revenues and Costs.