Estimation of Area Elasticities from a Standard Profit Function

11 Pages Posted: 24 Apr 2020

See all articles by Carlos Arnade

Carlos Arnade

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) - Market & Trade Economics Division

David Kelch

affiliation not provided to SSRN

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Date Written: August 2007

Abstract

This article demonstrates that both crop area and output elasticities can be calculated from a profit function. A Chambers/Just profit function (which includes land allocations as quasi‐fixed factors) is used to derive shadow price equations for each crop area allocation. Jointly solving these shadow price equations for crop area makes it possible to calculate individual crop area elasticities. A profit function is specified to represent agricultural producers in the state of Iowa. Shadow price equations are jointly estimated with output supply and input demand equations. From these estimated equations, we derive the individual crop area response and output response to a change in prices.

Keywords: area response, duality, land, profit function, shadow price

Suggested Citation

Arnade, Carlos and Kelch, David, Estimation of Area Elasticities from a Standard Profit Function (August 2007). American Journal of Agricultural Economics, Vol. 89, Issue 3, pp. 727-737, 2007, Available at SSRN: https://ssrn.com/abstract=3583752 or http://dx.doi.org/10.1111/j.1467-8276.2007.01004.x

Carlos Arnade (Contact Author)

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) - Market & Trade Economics Division ( email )

Washington, DC
United States

David Kelch

affiliation not provided to SSRN

No Address Available

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