afm07 - Farm Management Chapter 7 Economic Principles...

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Unformatted text preview: Farm Management Chapter 7 Economic Principles Choosing Production Levels farm management chapter 7 2 Chapter Outline Marginalism The Production Function How Much Input to Use How Much Output to Produce Applying the Marginal Principles Equal Marginal Principle farm management chapter 7 3 Chapter Objectives 1. To explain the concept of marginalism 2. To show the relation between a variable input and an output by use of a production function 3. To describe the calculation of average and marginal physical products 4. To illustrate the law of diminishing returns 5. To find the profit-maximizing point using the concepts of marginal value product and marginal input cost 6. To find the profit-maximizing point using the concepts of marginal revenue and marginal cost 7. To explain the use of the equal marginal principal farm management chapter 7 4 Marginalism The term marginal refers to incremental changes, either increases or decreases, that occur at the edge or at the margin. It may help to mentally substitute extra or additional whenever the word marginally is used. But keep in mind that the extra can be negative. farm management chapter 7 5 The Production Function The production function is a systematic way of showing the relation between different amounts of a resource or input that can be used to produce a product and the corresponding output. farm management chapter 7 6 Table 7-1 Production Function in Tabular Form Total Average Marginal physical physical physical Input product product product level (TPP) (APP) (MPP) 1 12 12.0 12.0 2 30 15.0 18.0 3 44 14.7 14.0 4 54 13.5 10.0 5 62 12.4 8.0 6 68 11.3 6.0 7 72 10.3 4.0 8 74 9.3 2.0 9 72 8.0-2.0 10 68 6.8-4.0 farm management chapter 7 7 Total Physical Product Total physical product (TPP) is the amount of production expected from using each input level. Output or yield is often called total physical product. farm management chapter 7...
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afm07 - Farm Management Chapter 7 Economic Principles...

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