Chapter 6: Agricultural Production Economics Production with One Input and One Output.
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Transcript of Chapter 6: Agricultural Production Economics Production with One Input and One Output.
![Page 1: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/1.jpg)
Chapter 6: Agricultural Production Economics
Production with One Input and One Output
![Page 2: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/2.jpg)
A Production Function:
Transformation of
input into output
A technical relationship
(not behavioral)
![Page 3: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/3.jpg)
Output:
CornTobaccoWheatBeefMilk
![Page 4: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/4.jpg)
Input:
SeedFertilizerFeedMachinery
FERTILIZER
11-48-0
P205 N K20
JOHN DEERE
![Page 5: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/5.jpg)
Fixed versus Variable InputsFixed--
Farmer does not expectto vary
Over the planning horizon
Variable--
Farmer expects to vary
Over the planning horizon
???
??
?
![Page 6: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/6.jpg)
Length of Planning Horizon:in the mind of the farmer6 months?The Growing Season?2 years?10 years (for Christmas trees)?Only the farmer knows for sure
6 months ?
2 years ? 50 years ?
![Page 7: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/7.jpg)
Old idea--
Inputs could be categorizedLand--fixedLabor--variableMachinery--fixed (sort of!)
Not a correct idea
JOHN DEERE
![Page 8: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/8.jpg)
Correct idea:Planning horizon determines whether inputs
Short Run--All inputs fixedIntermediate Run--Some fixed,
some variableLong Run--All inputs variable
are fixed or variable
![Page 9: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/9.jpg)
Inputs:Traditional list
LandLabor
CapitalManagement
![Page 10: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/10.jpg)
With capital you can purchaseland and laborIs management an input??
![Page 11: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/11.jpg)
A Production Function:
Y = f(X)Y = output such as bu. of corn
X = input such as fertilizer
f(x) = rule for transforming X into Y
such as:
Y = 3X
Y = X
Y = .3X + .05X - .002X
Each of theseare production functions
0.5
2 3
![Page 12: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/12.jpg)
Y = f(X | X X X )
The Variable inputThe output
Inputs treated as fixed
Y
X | X X X3
Y or TPP
TPP = TotalPhysical
Product
1 2 3 4
1 2 3 4
![Page 13: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/13.jpg)
Y
X | X X X
Y or TPP
Y'
Y''
Y'''
X' X'' X'''
Specific amount of output froma specific amount of input
1 2 3 4 1 1 1
![Page 14: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/14.jpg)
Marginal ProductThe incremental change in output
associated with a1 unit change
in the use of the input
![Page 15: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/15.jpg)
Marginal Product of input x:
x = change in x
y = change in y
y = change in y
x = change in x= Marginal Product
Also called Marginal Physical Product
or MPP for short
![Page 16: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/16.jpg)
Diminishing,
Constant
and Increasing
Marginal Product
![Page 17: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/17.jpg)
ConstantMarginal Product
Case 1:
![Page 18: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/18.jpg)
Output
Input (x)0 1 2 3 4
2
4
6
8
(y)
Constant slope
y
Constant Marginal Product
![Page 19: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/19.jpg)
Output
Input (x)1 2 3 4
2
4
6
8
(y)
0
Constant slope
y
Triangles all thesame size and slope
= 2x
2
1
1 unit across2 units up2
2
2
1
1
1
Constant Marginal Product
![Page 20: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/20.jpg)
Output
Input (x)1 2 3 4
2
4
6
8
(y)
0
Constant slope
y = 2x
2
1
2
2
2
1
1
1Each additionalunit of Xproduces twoadditional unitsof Y
Constant Marginal Product
![Page 21: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/21.jpg)
Input (x)1 2 3 4Constant Marginal Product of b
Output (y)
0
Constant slope of by
1
1
1
1
b
b
b
b
b
b
b
b
=bx
Each additionalunit of x
additional Unitsof y
produces b
The MarginalProduct of anadditional unitof x is b
![Page 22: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/22.jpg)
Constant Marginal Product
x x y y y/ xMPP
![Page 23: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/23.jpg)
Constant Marginal Product
x x y y
0 0
1 2
2 4
4 8
5 10
3 6
y / xMPP
![Page 24: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/24.jpg)
Constant Marginal Product
x x y y
0 0
1 2
2 4
4 8
5 10
3 6
1
1
1
1
1
y /MPP
x
![Page 25: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/25.jpg)
Constant Marginal Product
x x y y
0 0
1 2
2 4
4 8
5 10
3 6
1
1
1
1
1
Y /MPP
2
2
2
2
2
x
![Page 26: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/26.jpg)
Constant Marginal Product
x x y y
0 0
1 2
2 4
4 8
5 10
3 6
1
1
1
1
1
Y /MPP
2
2
2
2
2
2/1
2/1
2/1
2/1
2/1
MPP = 2 everywhere
x
![Page 27: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/27.jpg)
Constant MPP
x
y = b
x
y
b
y = bx
b = MarginalProduct of anAdditionalUnit of x
![Page 28: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/28.jpg)
Marginal Product
Case 2:Increasing
![Page 29: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/29.jpg)
Output (y)
Input (x)0 1 2 3 4 5
0.72
3.5
0.7 1.3
4.5
Increasingmarginalreturnsto the
variableinput
Increasing Marginal Product
3
6.5
11
1.5
![Page 30: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/30.jpg)
x x y y
0 0
Y / xMPP
1 0.7
2 2.0
3 3.5
4 6.5
Increasing Marginal Product
5 11.0
![Page 31: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/31.jpg)
x x y y
0 01
1
1
1
1
Y / xMPP
1 0.7
2 2.0
3 3.5
4 6.5
Increasing Marginal Product
5 11.0
![Page 32: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/32.jpg)
x x y y
0 01
1
1
1
1
Y / xMPP
.7
1.3
1.5
3.
4.5
1 0.7
2 2.0
3 3.5
4 6.5
Increasing Marginal Product
5
MPP increases as x increases
11.0
![Page 33: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/33.jpg)
x x y y
0 01
1
1
1
1
Y / xMPP
.7
1.3
1.5
3.
4.5
1 0.7
2 2.0
3 3.5
4 6.5
.7/1
1.3/1
1.5/1
3.0/1
4.5/1
Increasing Marginal Product
5
MPP increases as x increases
11.0
![Page 34: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/34.jpg)
Case 3:
Decreasing(Diminishing)MarginalProduct
![Page 35: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/35.jpg)
Output (y)
Input (x)0 1 2 3 4 5
y = f(x)
5
2
1
.5
.3
1
1
1
1
1
5
7
88.58.8
Slope increasesbut at adecreasing rateAdditional unitsof x produceless and lessadditional y
Decreasing (Diminishing) Marginal Product
![Page 36: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/36.jpg)
x x y y y / x MPP
Decreasing Marginal Product
![Page 37: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/37.jpg)
x x y y y / x MPP
0 0
1 5
2 7
3 8
4 8.5
5 8.8
Decreasing Marginal Product
![Page 38: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/38.jpg)
x x y y y / x MPP
0 0
1 5
2 7
3 8
4 8.5
5 8.8
1
1
1
1
1
Decreasing Marginal Product
![Page 39: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/39.jpg)
x x y y y / x MPP
0 0
1 5
2 7
3 8
4 8.5
5 8.8
1
1
1
1
1
5
2
1
0.5
Decreasing Marginal Product
0.3
![Page 40: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/40.jpg)
x x y y y / x MPP
0 0
1 5
2 7
3 8
4 8.5
5 8.8
1
1
1
1
1
5
2
1
0.5
5/1
2/1
1/1
.5/1
.3/1
Decreasing Marginal Product
As the use of x increases, MPP decreases
0.3
![Page 41: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/41.jpg)
A Neoclassical ProductionFunction
X | X X X X 1 2 3 4 5
![Page 42: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/42.jpg)
A Neoclassical ProductionFunction
Y
X | X X X X 1 2 3 4 5
![Page 43: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/43.jpg)
A Neoclassical ProductionFunction
Y
Increasing MPP(and TPP)
X | X X X X 1 2 3 4 5
![Page 44: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/44.jpg)
A Neoclassical ProductionFunction
Y
Increasing MPP(and TPP)
InflectionPoint
X | X X X X 1 2 3 4 5
![Page 45: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/45.jpg)
A Neoclassical ProductionFunction
Y
Increasing MPP(and TPP)
InflectionPoint
Decreasing MPPIncreasing TPP
X | X X X X 1 2 3 4 5
![Page 46: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/46.jpg)
A Neoclassical ProductionFunction
Y
Increasing MPP(and TPP)
InflectionPoint
Decreasing MPPIncreasing TPP
Maximum TPP0 MPP
X | X X X X 1 2 3 4 5
![Page 47: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/47.jpg)
A Neoclassical ProductionFunction
Y
Increasing MPP(and TPP)
InflectionPoint
Decreasing MPPIncreasing TPP
Maximum TPP0 MPP
Negative MPPDeclining TPP
X | X X X X 1 2 3 4 5
![Page 48: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/48.jpg)
Law of Diminishing
(Marginal) ReturnsAs units of the variable input (X )are added to units
of the fixed inputs ( X , X , X , X )we eventually reach a pointwhere each ADDITIONAL unitof the variable input (X )produces Less and Less ADDITIONAL output!
1
2 3 4 5
1
![Page 49: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/49.jpg)
Y
Increasing MPP(and TPP)
InflectionPoint
Decreasing MPP Increasing TPP
Maximum TPP0 MPP
Negative MPPDeclining TPP
Law of DiminishingReturns holdsStarting Here
X | X X X X 1 2 3 4 5
![Page 50: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/50.jpg)
Y
Increasing MPP
(and TPP)
InflectionPoint
Decreasing MPP
Increasing TPP
Maximum TPP0 MPP
Negative MPPDeclining TPP
X | X X X X 1 2 3 4 5
![Page 51: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/51.jpg)
Y
Increasing MPP
(and TPP)
InflectionPoint
Decreasing MPP
Increasing TPP
Maximum TPP0 MPP
Negative MPPDeclining TPP
MPP
0
X | X X X X 1 2 3 4 5
![Page 52: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/52.jpg)
Y
Increasing MPP
(and TPP)
InflectionPoint
Decreasing MPP
Increasing TPP
Maximum TPP0 MPP
Negative MPPDeclining TPP
MPP
0
X | X X X X 1 2 3 4 5
MPP
X | X X X X 1 2 3 4 5
![Page 53: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/53.jpg)
Y
Increasing MPP
(and TPP)
InflectionPoint
Decreasing MPP
Increasing TPP
Maximum TPP0 MPP
Negative MPPDeclining TPP
MPP
0
X | X X X X 1 2 3 4 5
MPP
X | X X X X 1 2 3 4 5
![Page 54: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/54.jpg)
Y
Increasing MPP
(and TPP)
InflectionPoint
Decreasing MPP
Increasing TPP
Maximum TPP0 MPP
Negative MPPDeclining TPP
MPP
0
X | X X X X 1 2 3 4 5
MPP
X | X X X X 1 2 3 4 5
![Page 55: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/55.jpg)
AveragePhysical
ProductThe ratio of output to variable input
Y/XY/X | X X X X
Average productof ALL units of X used(not the incremental unit)
1 2 3 4 5
![Page 56: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/56.jpg)
X Y Y/X
2 16 83 21 74 24 65 25 56 18 3
0 0 undefined1 7 7
Input Output (TPP) APP
TPP and APP
![Page 57: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/57.jpg)
0
5
10
15
20
25
30
0 1 2 3 4 5 6 7
XY (Scatter) 1 XY (Scatter) 2
Y
TPP
APP
PointInflection
X
![Page 58: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/58.jpg)
0
5
10
15
20
25
30
0 1 2 3 4 5 6 7
XY (Scatter) 1 XY (Scatter) 2
Y
Line out of Origin
TPP
APP
PointInflection
X
![Page 59: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/59.jpg)
0
5
10
15
20
25
30
0 1 2 3 4 5 6 7
XY (Scatter) 1 XY (Scatter) 2
Y
Line out of Origin
Point of Tangency
TPP
APP
PointInflection
X
![Page 60: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/60.jpg)
0
5
10
15
20
25
30
0 1 2 3 4 5 6 7
XY (Scatter) 1 XY (Scatter) 2
Y
Maximum APP
Line out of Origin
Point of Tangency
TPP
APP
PointInflection
X
![Page 61: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/61.jpg)
0
5
10
15
20
25
30
0 1 2 3 4 5 6 7
XY (Scatter) 1 XY (Scatter) 2
Y
Maximum APP
Line out of Origin
Point of Tangency
TPP
APP
PointInflection
X
![Page 62: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/62.jpg)
0
5
10
15
20
25
30
0 1 2 3 4 5 6 7
XY (Scatter) 1 XY (Scatter) 2
Y
Line out of Origin
Ratio Y/X
= Slope of Line
From OriginTPP
APP
APP = Y/X
Y
X
X
![Page 63: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/63.jpg)
YAPP MAXIMUM
InflectionPoint
X
X
APPAPP,MPP
0
APP:Never Negative
![Page 64: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/64.jpg)
YAPP MAXIMUM
InflectionPoint
MPP = 0
MPP MAXIMUM X
X
MPP=APP
MPP = APP
APP
MPP
APP,MPP
0
![Page 65: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/65.jpg)
Do They have a Relationship???
MPP
APP
Marginal Physical ProductAverage Physical ProductMPP
X X
MPP APP
![Page 66: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/66.jpg)
APP
0X | X X X X 1 2 3 4 5
MPP,
APP
![Page 67: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/67.jpg)
APP
0X | X X X X 1 2 3 4 5
and Increasng APP
Positive
APP
MPP,
APP
![Page 68: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/68.jpg)
APP
0X | X X X X 1 2 3 4 5
and Increasng APP
Positive
MPP,
APP
Maximum
APP
![Page 69: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/69.jpg)
APP
0X | X X X X 1 2 3 4 5
and Increasng APP
Positive but Decreasing APP
Positive
MaximumAPP
MPP,
APP
![Page 70: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/70.jpg)
APP
0X | X X X X 1 2 3 4 5
and Increasng APP
Positive but Decreasing APP
Positive
MaximumAPP
MPP,
APP
![Page 71: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/71.jpg)
APP
0X | X X X X 1 2 3 4 5
and Increasng APP
InflectionPoint of
TPPMaximum
MPP
Positive but Decreasing APP
Positive
MaximumAPP
MPP,
APP
![Page 72: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/72.jpg)
APP
0X | X X X X 1 2 3 4 5
IncreasingMPP
DecreasingMPP
0 MPPMaximum TPP
Positive
and Increasng APP
InflectionPoint of
TPPMaximum
MPP
Positive
but
Positive but Decreasing APP
Positive
MaximumAPP
MPP=APP
MPP,
APP
![Page 73: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/73.jpg)
APP
MPP
0X | X X X X 1 2 3 4 5
IncreasingMPP
DecreasingMPP
0 MPPMaximum TPP
Positive
Negative andDecreasing MPP
and Increasng APP
InflectionPoint of
TPPMaximum
MPP
Positive
but
Positive but Decreasing APP
Positive
MaximumAPP
MPP=APP
MPP,
APP
![Page 74: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/74.jpg)
measures:responsiveness of outputto changes in the useof Inputs
Elasticity of Production
A pure number(has no units)
![Page 75: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/75.jpg)
Elasticity of Production% Change in output (Y)
divided by% Change in input (X)
% in output Y% in input X
=
![Page 76: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/76.jpg)
Elasticity of Production
% in output Y% in input X
Y/YX/X
=
YX
XY
.
MPP 1/APP
= = MPP/APP
![Page 77: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/77.jpg)
% in output Y% in input X
= MPP/APP
The Elasticity of Production (Ep)is the Ratio
of MPP to APP
![Page 78: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/78.jpg)
AVP
Ep = 0
$
MVP
Ep = 1
0X | X X X X 1 2 3 4 5
Ep > 1(MPP>APP)
0<Ep<1 Ep < 0
IncreasingMPP
DecreasingMPP
0 MPPMaximum TPP
Positive
Negative andDecreasing MPP
and Increasng APP
![Page 79: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/79.jpg)
When the elasticity of production is greaterthan one, MPP lies above APP, APP is increasing,but MPP may be either increasing or decreasing.
When the elasticity of production is betweenzero and 1, both MPP and APP are decreasing.However, MPP is positive here.
Wnen the elasticity of production is negative,MPP is negative, and TPP is falling. However,
APP still remains positive.
![Page 80: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/80.jpg)
Profit Maximixation:
and 1 output (Y)
1 input (X)
![Page 81: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/81.jpg)
Assumptions:
1. Constant Input Price
The producer can purchaseas much or as littleof the needed input
at the going market price.
No producer canaffect input prices
by the amount of the purchase.
![Page 82: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/82.jpg)
2. Constant Output PriceNo producer can affectthe price of the output (Y)because of theindividual production decision.
The price of the input is V.The price of the output is P.
![Page 83: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/83.jpg)
3. Production Function Known
with CertaintyThis is an unrealistic assumption for agriculture!
![Page 84: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/84.jpg)
Profit =Total Revenue - Total Cost
= TR - TC
= PY –V X. but Y = f(X)
so= Pf(X) – V X.
Total Value of Product Total Factor Cost
.
.
![Page 85: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/85.jpg)
P f(X) - V X
Total Value of Product Total Factor Cost
Maximizing Profit:Maximize the difference
between
TVP and TFC
TVP TFC
. .
![Page 86: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/86.jpg)
What is the appearance of a
TVP CURVE?
![Page 87: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/87.jpg)
The TVP curve is a production function
with the vertical axis measured in dollar value
of output, not physical units
TVP = P TPP.
such as bushels or pounds.
![Page 88: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/88.jpg)
TPPY
Production Function
TPP P .$
TPP P.
=TVP
TVP Curve
XX
TPP
![Page 89: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/89.jpg)
What is the appearance of a
Total Factor Cost (TFC)Curve?
![Page 90: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/90.jpg)
Total Factor Cost (TFC) Curve
TFC = V X
TFC
.
$
V
1
x
![Page 91: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/91.jpg)
TFC = V X
TFC TVP
TPP and TVP max
.
$
V
1
x
Now Superimpose TVP Curve
![Page 92: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/92.jpg)
TFC = V X
TFC TVP
Tangent
Tangent
TPP and TVP max
.
$
V
1
x
![Page 93: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/93.jpg)
TFC = V X
TFC TVP
Tangent
Tangent
TPP and TVP max
.
$
V
1
x
Right of APP maxLeft of TPP Max
APP Max
![Page 94: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/94.jpg)
TFC = V X
TFC TVP
Tangent
Tangent
TPP and TVP max
.
$
Maximum Vertical Distance= Maximum Profit
Maximum Vertical Distance= Maximum Loss
V
1
x
![Page 95: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/95.jpg)
TFC = V X
TFC
1
V
TVP
Tangent
Tangent
TPP max
.
$
Profit is maximumwhere slope of TVP= Slope of TFC
X
![Page 96: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/96.jpg)
Slope of TVP = Slope of TPP P .
= MPP P.
= MVP
= Marginal Value of the Product
So profits are maximum where:Slope of TVP = Slope of TFCMVP = MFCMVP = VMVP = the input price,assuming constant input and output prices
![Page 97: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/97.jpg)
$MVP
0
MVP= MPP P
MFC = V
Profit MaxMVP=MFC=V
Profit Min
AVP=APP P
TFC = V X
TFC
1
V
TVP
Tangent
Tangent
TPP max
.
$
MVP=MFC=V
AVP Max
X
X
![Page 98: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/98.jpg)
Stagesof
Production
![Page 99: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/99.jpg)
Stage I
0 units of Xto level of X whichMaximizes AVP
![Page 100: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/100.jpg)
Stage II
Level of X that Maximizes AVP
toLevel of X that Maximizes TPP
(0 MVP and 0 MPP)
![Page 101: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/101.jpg)
Stage III
Level of X that Maximizes TPP (0 MPP)
and Beyond ......
Y
Stage III
X
![Page 102: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/102.jpg)
The Rational Producer...1. Never produces beyond
the point of maximum TPP(input prices are never negative)
2. Produces at the point of maximum TPPonly if the input is free!
3. Does not normally producein stage I of Production
Stage II is theRational Stage of Production
Where the profit maximizing pointis found
![Page 103: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/103.jpg)
$AVP
AVP=APP P.
Why not stage I?
Pick any point on the AVP curve.Draw an AVP curve.
Average Value of the Product= Average Physical Producttimes the product price
0X
![Page 104: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/104.jpg)
$AVP
AVP=APP P.
X'
Area enclosed by rectangleis total revenue
from the use of X' units of X
X0
![Page 105: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/105.jpg)
$
X
AVP=APP P.
MVP= MPP P.
Now add MVP curve
Marginal Value Product
= Marginal Physical Product
times the product price
0
![Page 106: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/106.jpg)
$
MVP
Maximum ProfitTotal Factor Cost
of Input X
at profit max
Now add MFC curve (MFC = V)
Marginal Factor Cost= the price (V) of the input (X)
AVP=APP P
0X
MFC=V
![Page 107: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/107.jpg)
$
AVP=APP P.
MVP
Maximum Profit
Total Revenuefrom sale of the product
using profit maximizinglevel of X
MFC=V
X0
![Page 108: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/108.jpg)
$
X
AVP=APP P.
MVP
Maximum ProfitTotal Factor Costof Input X
at Profit MaxCost of X
Revenue-Cost=Profit
MFC=V
MFC=V
0
![Page 109: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/109.jpg)
$
X
MVP
AVP
But if MFC > Maximum AVPCosts > RevenueLose money where MVP=MFC, andshut down instead!
Revenue
MFC= V
0
![Page 110: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/110.jpg)
$
X
MVP
AVPRevenueCost of X
MFC= V
0
![Page 111: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/111.jpg)
$
X
MVP
AVPRevenue
MFC= V
Revenue fails to cover costsresulting in a loss as indicated
Revenue
Loss
0
![Page 112: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/112.jpg)
Stages of Productionand Elasticities of Production
Stage I Ep > 1Stage II 0 <Ep < 1
Stage III Ep < 0Rational Stage where0 <Ep < 1
![Page 113: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/113.jpg)
AVP
Ep = 0
Stage I Stage II Stage III
$
MVP
Ep = 1
0X | X X X X 1 2 3 4 5
Ep > 1(MPP>APP)
0<Ep<1 Ep < 0
IncreasingMPP
DecreasingMPP
0 MPPMaximum TPP
Positive
Negative andDecreasing MPP
and Increasng APP
![Page 114: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/114.jpg)
AVP
Ep = 0
Stage I Stage II Stage III
Demand Curve for input X$
MVP
Ep = 1
0X | X X X X 1 2 3 4 5
Ep > 1(MPP>APP)
0<Ep<1 Ep < 0
![Page 115: Chapter 6: Agricultural Production Economics Production with One Input and One Output.](https://reader036.fdocuments.in/reader036/viewer/2022062322/56649f4e5503460f94c703b2/html5/thumbnails/115.jpg)
The Demand Curve for a Singe Input
All Points of Intersection BetweenMFC and MVP that liein Stage II of Production
The Quantity of Input the ProducerWould Use to Maximize Profitsat Each Possible Input Price