The overall purpose of this three-part dissertation is to specify and estimate various components of inefficiency in the production and profit-generating processes. Flexibility in inefficiency-measurement techniques is introduced using stochastic fun ctional forms to overcome the restrictions of the simplifying assumptions used in previous studies. In addition, the profit function approach is used to measure firm specific inefficiency and to view profit inefficiency in the multiple output context. Empirical application of each approach is also attempted. Application of the measurement of the inefficiency component in the first two essays is made using data taken from Indian agricu lture. The multiple output model of the third essay is applied to data of the U. S. unit bank taken from the Functional Cost Analysis programme of the Federal Reserve banking system. In the first essay, a quasi-translog production function is introduced and allocative, technical, and scale infficiencies are estimated for Indian agriculture with large and small farm divisions. Results obtained contradict earlier conclusions regarding the efficiency of Indian farms. In the second essay, a Normalized Restricted Profit function is used to estimate allocative, scale, and profit inefficiency for the same set of farms. Empirical results confirm the conclusions of the first essay. Technical inefficiency cannot be isolated in this case, because the impact of technical inefficiency is confounded in the measure of profit inefficiency. In the third essay, a translog profit function is used to estimate profit and allocative inefficiency in U. S. banking operations.