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Production and technological change

8 important questions on Production and technological change

Why is the quadratic functional form a flexible function form in contrast with a Cobb-Douglas function?

A quadratic production function is a second-order approximation of the production relationship as opposed to the more restrictive first-order (or linear) approximation of a Cobb-Douglas function. In other words, changes in curvature of the production function are better captured by a quadratic function than by a Cobb-Douglas function. Note that for the quadratic function the production elasticities (and therefore scale parameter and 
substitution elasticity) are also dependent on production size and use of other inputs and therefore flexible. See how the values changed in the second row when we reduced g.

Give an interpretation of the scale parameter

Scale parameter: the impact of a proportionate change of all inputs to the output is equal to the sum of the production elasticities (add up of coefficients of variable input, labour, cattle, capital good and land). If all inputs would be variable a dairy farmer would increase all inputs. However, the quasi-fixed inputs cannot be adjusted in the short-run


Some technical developments are established in business by R&D. Give examples. 

Milking robot (dairy farming), Roundup-ready crops, precision farming computers (e.g. 
Vicon) 
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Some technical developments are established by R&D supported by government. Give examples

Innovations for organic farming, all Wageningen research. 


What is price endogenous technical development? Can you give an example in horticulture?

Price endogenous technical development are innovations in expensive production factors. For example in horticulture, high labour costs have led to the developments of sorting machines that need much fewer people. Note that thuis also implies a substitution of capital for labour. High energy prices have led to more efficient heating systems in horticulture. 


Suppose that use of pesticides has to be abolished completely because of governmental regulation. How can this be observed in production functions and in technological change as described in this chapter?

In order to get rid of pesticides, one has to know what it can be substituted with. So, substitution elasticities are important. If these are low, it’s difficult to get rid of pesticides. Possibilities for substitution arise from more resistant plants (a variable input), labour (weeding by hand) or machinery (mechanical weeding). To investigate these substitution possibilities you need these substitute production factors explicitly in the production function. Technological change should aim at plants that are more resistant, improved 
mechanical weeding systems etc. 


“The development of GMO techniques might cause a process as described in the treadmill theory of Cochrane”. 

GMO’s may lead to higher production levels. If some farmers adopt, aggregate output increases, market prices will drop. This affects themselves but also farmers who did not adopt. Therefore, these may also be forced to adopt in order to survice. Eventually, new technologies will be demanded and the same story starts over again. The treadmill means that farmers are forced to adopt new technologies over and over


There are producers who do not want to use GMO breeds. Why would they be a supporter of GMO labelled food?

They want to create separate markets for GMO food and non-GMO food. In that case they expect that supply of non-GMO food will not rise so that prices will not drop. Of course they also expect to gain some premium on the price if consumers are willing to pay extra for non-GMO food. In this way they hope to break the GMO treadmill effect so that they are not forced to adopt. 

The question on the page originate from the summary of the following study material:

Economics of Agribusiness | Gardebroek, et al

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