Evaluation of allocative efficiency as an economic growth of the agricultural farm

MSc. Silvana Mustafaj, Prof. Dr. Parashqevi Rrapo, MSc. Jona Mulliri

Abstract

Many farms do not pay the proper attention for achieving allocative efficiency (of the distribution or prices), or they do not even recognize it as an important factor of their economic development. For this reason, analysis and evaluation of allocative efficiency as a vital component of economic efficiency, becomes more and more important. The application of mathematical methods to model the real situation of farms is a necessary condition to achieve this goal.
The article aims to give a complete overview of this mathematical and economic analysis related to allocative efficiency of farm production, in terms of decision making for output-output production, which is often confused with other similar economic concepts. This analysis was based on production possibility frontier (PPF) concept by introducing the analysis of mathematical programming, and Isorevenue Line. Measurement of output-oriented efficiency according to Farrell explains the position of the farm about being or not efficient in distribution.
In conclusion the paper provides some recommendations to achieve alokative efficiency using the same given level of production factors, but in a rational way, in order to reach a higher production level.

Keyword: allocative efficiency, production possibilities frontier, isorevenue line

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