A Duality Approach to Testing the Economic Behaviour of Dairy-Marketing Co-operatives: The Case of Ireland



run variable and the firm faces given prices for its output and all other inputs, bar milk. Short-run
restricted profits are simply, pmrn, where, pm is the price of milk and m is the level of milk supplied
by members. If the CMF maximises pmrn, then pm is also maximised.

Thus the firm must process all the milk its suppliers deliver for processing. The level of raw
material processed or demanded by the cooperative is a given for the “open” cooperative firm but
the price paid for the raw material is a choice variable.

Let’s now characterise the dairy cooperative as an “open” entity but unlike, Helmberger and Hoos,
let’s retain the assumption, as a maintained hypothesis, that capital is a short-run quasi-fixed input.
The behavioural objective of such a firm will be to maximise short-run restricted profits
conditional on a given level of raw material (m) and capital stock (k). This can be thought of as
maximising the returns to capital and raw materials. The profit function of the dairy-processing
firm will now be given by equation (3):

ck,m = ck,Λpy,w,m,k)                                                        (ʒ)

where,

ck m = maximum short-run profit for the cooperative firm.

m = level of raw material (milk) which the cooperative must process.

w = vector of variable input prices such that w < w.



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