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Expenditure Constraints and Profit Maximization in U.S. Agriculture
Author(s) -
Lee Hyunok,
Chambers Robert G.
Publication year - 1986
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242132
Subject(s) - profit maximization , maximization , profit (economics) , economics , marginal profit , microeconomics , agriculture , econometrics , ecology , biology
This paper considers the effect of expenditure constraints on producer profit maximization. A theory of expenditure‐constrained profit maximization that provides restrictions for testing the competing null hypotheses of unconstrained and expenditure‐constrained profit maximization is developed. The resulting model is fitted to aggregate U.S. agricultural data. The hypothesis of unconstrained profit maximization is rejected, while expenditure‐constrained profit maximization cannot be rejected for U.S. agriculture. U.S. farmers apparently experience binding constraints in financing their variable production costs.