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Abstract

This paper examines the relationship between three expense ratios: total expense ratio; adjusted total expense ratio; and economic total expense ratio; and discusses economies of size for a sample of Kansas farms. The total expense ratio and the adjusted total expense ratios, though commonly used to examine financial efficiency, are not as good of indicators of economies of size as the economic total expense ratio which includes opportunity costs on unpaid operator and family labor, and farm equity. Using the economic total expense ratio, cost per dollar of value of farm production for farms with an average value of farm production greater than $1,000,000 was 52 percent and 29 percent lower than it was for farms with an average value of farm production less than $100,000, and for farms with an average value of farm production between $100,000 to $250,000, respectively. Results confirm previous literature that indicated long-run cost curves for production agriculture are L-shaped.

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