A Revenue-Function Approach to the Measurement of Output-Substitution Possibilities in Agriculture

Abstract

The purpose of this article is to calculate Hicksian and Marshallian estimates of output-substitution possibilities in an agricultural industry. The Hicksian elasticities or net substitution possibilities are measured within a revenue-maximizing framework holding input levels constant. The Marshallian elasticities that encompass both net substitution and expansion effects are measured within a profit-maximizing framework allowing both output and input levels to vary. The results are empirically reasonable and consistent with the duality theory for revenue and profit maximizing behavior. A notable empirical result is that, in the very short run or market period with input levels held constant, there exists considerable scope for changing the output composition between crops and cattle on cattle farms.