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Abstract

Use of nonparametric frontier estimation has been shown to accurately estimate cost frontiers, cost efficiency, and economies of scope in industries. This research uses the nonparametric approach to estimate scope and efficiency as well as multi-product and product-specific economies of scale for Kansas Farms. We find that small farms have a large cost savings advantage through exploiting economies of scale up to $500k in gross revenues. Large farms however have the best opportunity for cost savings through improving efficiency. We also find that the nonparametric approach can estimate an accurate cost frontier from a single year’s data while the parametric approach may require up to 20 years of price variability to generate a reliable frontier.

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