THE PURPOSE OF THE STUDY WAS TO DEVELOP AN INSTRUMENT FOR MEASURING PROFIT-MAXIMIZING PRINCIPLES IN FARM MANAGEMENT WITH IMPLICATIONS FOR VOCATIONAL AGRICULTURE. PRINCIPLES WERE IDENTIFIED FROM LITERATURE SELECTED BY AGRICULTURAL ECONOMISTS. FORTY-FIVE MULTIPLE-CHOICE QUESTIONS WERE REFINED ON THE BASIS OF RESULTS OF THREE PRETESTS AND ADMINISTERED TO 158 OHIO FARMERS SELECTED UPON THE BASIS OF MANAGERIAL COMPETENCE EXHIBITED IN FARM HOME ADMINISTRATION DATA. THE PRINCIPLES WHICH CONTRIBUTED TO EFFICIENT FARMING WERE IDENTIFIED AS (1) DIMINISHING PHYSICAL RETURNS, (2) DIMINISHING ECONOMIC RETURNS, (3) FIXED-VARIABLE COSTS, (4) SUBSTITUTION, (5) EQUI-MARGINAL RETURNS, (6) COMBINATION OF ENTERPRISES, AND (7) TIME RELATIONSHIP. OF THE 45 QUESTIONS, 19 POSSESSED POSITIVE SIGNIFICANT RELATIONSHIPS BETWEEN MANAGERIAL COMPETENCE AND UNDERSTANDING OF ECONOMIC PRINCIPLES. THE INSTRUMENT PROVIDED INCREASED INSIGHT FOR MEASURING THE UNDERSTANDING OF SIX OF THE PRINCIPLES. AN ANALYSIS OF VARIANCE REVEALED NO DIFFERENCE BETWEEN ACHIEVEMENT ON THE INSTRUMENT AND MANAGERIAL COMPETENCE. ONLY 59.9 PERCENT OF THE QUESTIONS WERE ANSWERED CORRECTLY INDICATING A NOTABLE LACK OF UNDERSTANDING OF PRINCIPLES. OLDER FARMERS POSSESSED LESS UNDERSTANDING THAN YOUNGER OPERATORS. THERE WAS NO SIGNIFICANT RELATIONSHIP BETWEEN THE UNDERSTANDING OF PRINCIPLES AND THEIR APPLICATION TO THE FARM BUSINESSES. NET AND GROSS FARM INCOME WERE THE MOST SIGNIFICANT INDICATOR OF AN INDIVIDUAL FARMER'S ECONOMIC EFFICIENCY. THE COST-OF-PRODUCTION RATIO WAS THE MOST DISCRETE ECONOMIC INDEX FOR PREDICTING THE LEVEL OF MANAGERIAL COMPETENCE. THIS PH.D. THESIS, WHICH WAS SUBMITTED TO THE OHIO STATE UNIVERSITY IS AVAILABLE AS 64-9579 FOR $3.10 ON MICROFILM AND FOR $10.80 AS XEROXED COPY FROM UNIVERSITY MICROFILMS, INC., 300 NORTH ZEEB ROAD, ANN ARBOR, MICHIGAN 48106. (JM)