fm6e-chapter07 - Farm Management Chapter 7 Economic...

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Farm Management Chapter 7 Economic Principles Choosing Production Levels
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farm management chapter 7 2 Chapter Outline The Production Function Marginal Analysis Law of Diminishing Marginal Returns How Much Input to Use Using Marginal Concepts Marginal Value Product and Marginal Input Cost Equal Marginal Principle
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farm management chapter 7 3 Chapter Objectives 1. Explain the concept of marginalism 2. Show the relation between a variable input and output by use of a production function 3. Describe the concepts of average and marginal physical products 4. Illustrate the law of diminishing returns 5. Find the profit-maximizing point using marginal concepts 6. Explain the use of the equal marginal principal
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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 Figure 7-1 Example of the production process in agriculture Insert figure 7-1 here, no title
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farm management chapter 7 6 Table 7-1 Production Function in Tabular Form Total Average Marginal Nitrogen physical physical physical Input applied Yield product product product level (lbs.) (bu.) (TPP) (APP) (MPP) 0 0 130 0 -- -- 1 25 148 18 18.00 18 2 50 162 32 16.00 14 3 75 170 40 13.33 8 4 100 177 47 11.75 7 5 125 180 50 10.00 3 6 150 182 52 8.67 2 7 175 183 53 7.57 1 8 200 183 53 6.63 0 Note that TPP is the portion of yield attributed to nitrogen use.
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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.
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8 Average Physical Product Average physical product (APP) is the average amount of output produced per unit of input used. APP =
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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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fm6e-chapter07 - Farm Management Chapter 7 Economic...

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