fm-chapters07to09

fm-chapters07to09 - Farm Management Chapter 7,8,9 Review of...

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Farm Management Chapter 7,8,9 Review of Economic Principles
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farm management chapter 7 2 Economic Concepts You should have seen most of these concepts in Principles If these concepts are not familiar, read the book chapters carefully and/or go back to your notes from Principles.
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farm management chapter 7 3 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.
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farm management chapter 7 4 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.
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farm management chapter 7 5 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.
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farm management chapter 7 6 Average Physical Product Average physical product (APP) is the average amount of output produced per unit of input used. APP = TPP input level
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farm management chapter 7 7 Marginal Physical Product Marginal physical product (MPP) is the additional TPP produced by using an additional unit of input. MPP = TPP input level
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farm management chapter 7 8 Law of Diminishing Marginal Returns As additional units of a variable input are used in combination with one or more fixed inputs, marginal physical product will eventually begin to decline. Diminishing returns may start with the first unit of input used, or may start later after a period of increasing returns.
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farm management chapter 7 9 Marginal Value Product MVP = total value product input level TVP = TPP × product selling price If output price is constant: MVP = MPP × product selling price
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farm management chapter 7 10 Marginal Input Cost MIC = total input cost input level TIC = amount of input × input price If input price is constant: MIC = input selling price
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farm management chapter 7 11 Table 7-2 Marginal Value Product, Marginal Input Cost and the Optimum Input Level input price = $12; output price = $2 Total Marginal Total Marginal Marginal physical physical value value input Input product product product product cost level (TPP) (MPP) (TVP) $ (MVP) $ (MIC) $ 0 0 0 1 12 12.0 24 24 12 2 30 18.0 60 36 12 3 44 14.0 88 28 12 4 54 10.0 108 20 12 5 62 8.0 124 16 12 6 68 6.0 136 12 12 7 72 4.0 144 8 12 8 74 2.0 148 4 12 9 72 -2.0 144 -4 12 10 68 -4.0 136 -8 12
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12 The Decision Rule MVP = MIC If MVP > MIC, additional profit can be made by using more input. If MIC > MVP, less input should
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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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fm-chapters07to09 - Farm Management Chapter 7,8,9 Review of...

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