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On the Function Coefficient, Euler's Theorem, and Homogeneity in Production Theory
Author(s) -
Beattie Bruce R.,
Holt Matthew T.,
Watts Myles J.
Publication year - 2002
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1111/1467-9353.00094
Subject(s) - homogeneity (statistics) , euler's formula , mathematics , production (economics) , function (biology) , production theory , mathematical economics , economics , econometrics , mathematical analysis , statistics , microeconomics , evolutionary biology , biology
This paper makes three related points useful in teaching first‐year graduate production theory. First, the local applicability of the classical function coefficient idea for short‐run nonhomogeneous production technologies is shown for returns to scale, satisfaction of second‐order and total conditions for profit maximization, and delineation of the economic region of production in factor space. Second, the general applicability of Euler's Theorem results to nonhomogeneous (variable‐proportional‐return) cases is developed. Lastly, it is shown that short‐run, nonhomogeneous production/yield functions are fully consistent with long‐run linear homogeneity.