How elastic is the profit to prices of output and the variable inputs? Some insights from paddy cultivation in India Chandel B S1, Kumari Binita2,* 1Department of Dairy Economics, Statistics and Management, ICAR-National Dairy Research Institute, Karnal, Haryana, 132001, India 2Department of Agricultural Economics, Rashtriya Kisan (PG) College, Shamli, Uttar Pradesh, 247776, India *Corresponding author: b.binitakumari@gmail.com
Online published on 24 March, 2023. Abstract One of the strategies that seems to be convenient to the government, farmers and policymakers is the increase output price to double the farmers’ income. But how much will be the increase in the profit as a result of increase in output price depends on the profit elasticities. Profit received by the farmers is a function of output supply as well as demand of inputs used in the production process, which, in turn, depends on their respective prices. The present study estimated normalised restricted translog profit function and used duality approach to determine profit elasticities with respect to output and input prices in paddy cultivation. The study found that the profit in paddy is more elastic (−1.7108) to the decrease in input prices than the increase in output price (1.6001). On the basis of elasticities, it can be calculated that the doubling of profit from paddy requires more than 62% increase in output price and more than 58% decrease in input prices in real terms. On the demand side, the increase in profit from this crop put heavy pressure on input market which needs to be taken care to have desired effect. Top Keywords Profit elasticity, Restricted translog profit function, Output supply elasticity, Input demand elasticity, Paddy. Top |