afm09c - Farm Management Chapter 9 Cost Concepts in...

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Farm Management Chapter 9 Cost Concepts in Economics
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farm management chapter 9 2 Chapter Outline Opportunity Cost Costs Application of Cost Concepts Economies of Size
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farm management chapter 9 3 Chapter Objectives 1. To explain the importance of opportunity cost and its use 2. To clarify the difference between short run and long run 3. To discuss the difference between fixed and variable costs 4. To identify fixed costs and show how to compute them 5. To show how to compute average costs 6. To demonstrate the use of costs in short run and long run decisions 7. To explore economies of size
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farm management chapter 9 4 Opportunity Cost The value of a product not produced because an input was used for another purpose, or The income that could have been received if the input had been used in its most profitable alternative use
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farm management chapter 9 5 Everything has an opportunity cost Even if you use the input in its best possible use, there is an opportunity cost for the item you did not produce. (In this case, opportunity cost will be less than the revenue actually received.)
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farm management chapter 9 6 Table 9-1 Opportunity Cost of Applying Irrigation Water Among Three Uses irrigation water wheat sorghum cotton (acre inches) (100 acres) (100 acres) (100 acres 4 $1,200 $1,600 $1,800 8 $800 $1,200 $1,500 12 $600 $800 $1,200 16 $300 $500 $800 20 $50 $200 $400 Marginal Value Products ($)
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farm management chapter 9 7 How does Opportunity Cost relate to the Equi-Marginal Principle? With the Equi-Marginal Principle, we are choosing to produce one product instead of another. The opportunity cost is the revenue given up from the crop not produced.
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farm management chapter 9 8 Opportunity Cost of Operator Time Opportunity cost of operator's labor : What the operator could earn for that labor in best alternative use. Opportunity cost of operator's management : Difficult to estimate. Total of opportunity cost of labor and opportunity cost of management should not exceed total expected salary in best alternative job.
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9 Opportunity Cost of Capital The opportunity cost of capital is often set equal to what the capital could earn in a no-risk savings account. Total dollar value of the capital inputs is
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This note was uploaded on 11/15/2011 for the course AGEC 7100 taught by Professor Duffy,p during the Fall '08 term at Auburn University.

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afm09c - Farm Management Chapter 9 Cost Concepts in...

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