Additional Topics in Production Economics

Abstract

The production economics concepts discussed in Chapter 2 should provide sufficient background for many of the basic efficiency and productivity measurement methods discussed in this book. Much of the Chapter 2 material is similar to what one would be likely to encounter in an undergraduate microeconomics course. The present chapter reviews some additional, more advanced, production economics material. Our primary focus in this chapter is on duality and multiple-input, multiple-output distance functions. An appreciation of the material in this chapter will ensure a deeper understanding of the basic productivity and efficiency measurement methods, and will also assist with the interpretation of more advanced methods, such as the measurement of allocative efficiency using stochastic frontier cost functions, which is discussed in Chapter 9.