Size Economies in Australian Agriculture

Theoretical, conceptual and estimational issues relevant to economies of size studies are discussed in this paper. Some of the issues discussed are the effects of technological change on the position and shape of the average cost curve over time, the relationship between farm size and relative economic efficiency and frontier versus average estimation techniques. There is also a brief review of various measurement and specification problems. In addition, empirical estimates of the extent of size economies were derived from a flexible translog production function using ASIS data for the New South Wales Wheat/Sheep Zone for the years 1966-67, 1975-76 and 1976-77. Estimation of the production function revealed that, when the relatively fixed inputs of operator and family labour were excluded, the sample exhibited constant returns to scale. On the other hand, when operator and family labour were included, the cost curve exhibited the familiar L shape found in earlier agricultural studies.