FACTOR DEMAND AND RETURNS TO SCALE IN MILK PRODUCTION: EFFECTS OF PRICE, SUBSTIUTION AND TECHNOLOGY

A translog cost function was estimated using pooled time series-cross section data from five Northeastern States to study structural changes in the dairy industry. The approach given in the duality theory was found useful in estimating the input demand structure under changing input prices and technology conditions. The estimated Allen partial elasticities of substitution show the existence of substitution between energy and non-energy inputs in dairy farming. Despite input price increases the dairy industry maintained competitiveness as seen by the returns to scale parameters