A New Approach to Measuring Utility and Output Levels in Microeconomics

This paper extends revealed preference to include both producer and consumer behavior. Observed consumer purchases generate an implicit ordinal utility index using an iterative revealed preference procedure specifically developed in this paper. Observed producer input purchases generate a preference index for input combinations that may not correspond to ordered output levels. The authors' method allows for nontraditional behavior. An intransitivity in producer or consumer behavior may indicate fluctuating or shifting goals or tastes. The information generated from these indices can be used with quantities and output levels to predict future behavior.