Profit, Supply, and Factor Demand Functions

The concept of the profit function provides an alternative approach to the analysis of production. First, a brief exposition of the theory of profit function is presented. Then the profit function and the factor demand functions are formulated within the Cobb‐Douglas framework. A statiscal test is devised for testing the hypothesis of constant returns to scale in all factors on the profit function. As an application, both the profit and the factor demand function are estimated jointly, using data from Indian agriculture.