Total versus Variable Cost Function Approaches to Investigating the Agricultural Production Structure

The major objective of this chapter is to search for a more appropriate approach to quantitatively investigating the production structure of postwar Japanese agriculture for the last four decades of the 20th century, more specifically for the period 1957–97. Thus far, we have utilized the TC function approaches in the seven chapters of Part I of this book which require the assumption that the farm-firm is at equilibrium with respect to the use of each of its factor inputs, as also used by Kuroda (1987, 1988a, 1988b, 1989, 1995, 1997, 2005, 2007, 2008a, 2008b, 2008c, 2009a, 2009b, 2009c, 2009d, 2009e, 2011a, 2011b), Kuroda and Lee (2003), Kuroda and Abdullah (2003), Kuroda and Kusakari (2009) to name only a few. In these studies, we have treated all five factor inputs (labor, machinery, intermediate input, land, and other input) as variable factor inputs. This indicates that we have assumed that the farm-firm behaves so as to minimize the total cost by attaining the optimal utilization with respect to all five factor inputs. These five factor inputs can be called variable factor inputs and endogenous to the TC function model. In this sense, we may call the TC function models employed in Part I ‘long-run’ models in the sense that all factor inputs are assumed to be at static equilibrium.