Dynamic Measures of Scope and Scale Economies: An Application to German Agriculture

Abstract Static concepts of multiproduct economies of scale and scope are extended into a dynamic setting within the cost of adjustment framework. Important properties of the dynamic measures are developed and the foundations of a dynamic theory of the firm generalizing static neoclassical theory are presented. Dynamic measures of scope and scale as well as shadow costs are estimated empirically for multiple‐output, multiple‐input German dairy farms operating under a production quota. Causes of scope economies are explored and a conceptual model to predict the evolution of the production structure of German farms is formulated.