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SummaryIn this study, two types of cost functions that capture the heterogeneity of farms are estimated for the mechanised and the non-mechanised farm groups of Ferozepur (Punjab), Muzaffarnagar (West U.P.) and Deoria (East U.P.) which represent ‘developed’, ‘semi-developed’ and ‘underdeveloped’ regions in India, respectively. In one type of cost function, the scale elasticity varies stochastically with output; in the other, it varies only randomly across sample farms. Based on the estimates of scale elasticity, the sample farms are classified into the categories of ‘optimal’ and ‘sub-optimal’ farms, and their characteristics are discussed. Lastly, the problem of fixing support/procurement prices on the basis of average cost of production is briefly discussed. |
