farmplan-lp-2007 - Farm Plan Whole-Farm Planning (LP) Whole...

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Farm Plan Whole-Farm Planning (LP)
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Whole Farm Planning Whole-farm planning is largely a matter of enterprise selection. What crops and livestock enterprises will be produced on this farm in the next year?
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Background: Enterprise Combinations Economic theory behind whole-farm planning.
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Production Possibility Curve Definition: A Production Possibility Curve (PPC) is the geometric representation of the combination of products that can be produced with a given set of inputs. It can be defined for an entire economy or for a single firm .
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Graph of PPC enterprise 1 enterprise 2
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Types of Enterprise Relationships Competitive with constant substitution Competitive with increasing substitution Supplementary Complementary
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Competitive with Constant Substitution enterprise 1 enterprise 2 These enterprises use the same inputs, in the same ratios.
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Competitive with Increasing Substitution enterprise 1 enterprise 2 The enterprises use different ratios of inputs and inputs experience diminishing marginal returns in each case.
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Supplementary enterprise 1 enterprise 2 supplementary range enterprise 1 makes use of some inputs that are not needed for enterprise 2
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Complementary enterprise 1 enterprise 2 as we produce more of enterprise 1, we can also produce more of enterprise 2
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Examples Competitive Constant Sub: Competitive Increasing Sub: Supplementary: Complementary corn and milo corn and cotton soybeans and winter stockers broilers and cattle
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Terms Physical substitution ratio: Profit Ratio Quantity of Output Lost Quantity of Output Gained Profit per unit of gained output Profit per unit of lost output
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Physical Substitution Ratio The physical substitution ratio is the slope of the Production Possibility Curve.
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Profit Ratio Profit Ratio is the slope of the isoprofit line: Π = π 1* Y1 + π 2 *Y2 where π 1 is profit per unit of enterprise 1, Y1 is the number of units (e.g. acres) produced, π 2 is the profit per unit of enterprise 2 and Y2 is the number of units produced.
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Decision Rule Physical Substitution Ratio = Price Ratio
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Graph: Point of Tangency enterprise 1 enterprise 2 isoprofit lines and PPC
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In real life We don't know the PPC. We are going to approximate this process using a technique called "Linear Programming."
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Linear Programming Linear programming maximizes or minimizes a particular linear objective function, subject to linear restrictions. Here our objective function is to maximize the returns over variable costs. This is a one-year or short-run plan.
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Returns over variable costs The returns over variable costs come from the enterprise budgets.
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Farm Planning Process Inventory available resources Select enterprises to be considered. Obtain appropriate Enterprise Budgets.
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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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farmplan-lp-2007 - Farm Plan Whole-Farm Planning (LP) Whole...

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