ABSTRACT

The quantities of inputs used and desirable outputs produced are given in Table 6.1. We include the 7 farmers from Table 5.1 and the one additional farmer (Farmer H, k = 8) that we calculated efficiency for in Section 5.3.1. We assume that inputs and desirable outputs are strongly disposable. That is, given inputs and some level of desirable output, it is always possible to produce less of the desirable outputs. Similarly, given some level of output, it is always possible to produce the same level of output using more input. In addition, we assume that the technology is convex. Convexity means that if we observe a group of firms producing various amounts of outputs using different (or the same) amounts of inputs, another feasible combination of outputs and inputs consists of a weighted average of all the firms’ outputs and inputs. For example, if we observe two firms such as F and H in Table 6.1, any linear combination of F’s outputs/inputs and H’s outputs/inputs is also feasible, such as 25% of F’s and 75% of H’s. This feasible combination, call it Y, is such that Y uses x1 = 0.25×250+0.75×250 = 250, x2 = 0.25×1000+0.75× 1000 = 1000, x3 = 0.25 × 150, 000 + 0.75 × 150, 000 = 150, 000, to produce y1 = 0.25× 10 + 0.75× 4 = 5.5, and y2 = 0.25× 2200 + 0.75× 4720 = 4090.