Derivation of economic weights from profit equations

Abstract

ABSTRACT The economic weights derived from profit equations depend on the base used for the evaluation. Thus different relative economic weights are obtained per unit of investment, per breeding female, per individual or per unit of product. This has led to uncertainty and confusion about appropriate economic weights in livestock improvement, and to apparent differences in interests between the investor, the farmer and the consumer. It is shown here that if the profit equation has a zero outcome, or the profit equation is transformed by setting its outcome to zero by considering profit as a cost of production (so called ‘normal profit’ in economics), then the relative economic weights are the same for all bases of evaluation. It is argued that this is the appropriate basis to determine economic weights.