Decomposition of Milk Supply Response into Technology and Price-Induced Effects

An economically relevant aggregate production function and an aggregate profit function are used to decompose milk supply response into technology and price effects. Decomposing milk supply response in this way provides insights into dairy industry efficiency and its impact on the effectiveness of p...

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Bibliographic Details
Published in:American journal of agricultural economics 1990-11, Vol.72 (4), p.864-872
Main Authors: Blayney, Don P., Mittelhammer, Ron C.
Format: Article
Language:English
Subjects:
Aggregate supply
aggregate supply response
Convexity
dairy
Dairy technology
duality
Hay
Herds
Input prices
Milk
Milk production
Supply
Technological development
Technology
technology and price effects
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Summary:An economically relevant aggregate production function and an aggregate profit function are used to decompose milk supply response into technology and price effects. Decomposing milk supply response in this way provides insights into dairy industry efficiency and its impact on the effectiveness of price support programs as well as the extent to which aggregate milk production will expand despite prices motivating supply curtailment. An empirical analysis of supply response decomposition for the state of Washington is presented. Expected market price effects were obtained but were overwhelmed by technology effects resulting in milk output expansion when price signals motivated supply reduction.
ISSN:0002-9092
1467-8276
DOI:10.2307/1242618