Economic Principles in Agribusiness: Substitution Notes Page Substitution/EP3 Activity Sheet...

Economic Principles in Agribusiness � EP3 � Substitution

Economic Principles in Agribusiness: Substitution Notes Page

Date _______________Topic___________________________________

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Summary of Main Ideas-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Notes-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐M

ain Idea

s, Key Points, Formulas-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

Substitution Constant Substitution Variable Substitution Maximum Profit Marginal Rate of Substitution Price Ratio Best Rate of Substitution


Economic Principles in Agribusiness: Substitution EP3.1

Best Rate of Substitution A business has decided to substitute workers for machines. Figure the MRS.

Number of Workers

Number of Workers Replaced

Number of Machines

Number of Machines

Added

Marginal Rate of Substitution

25 0

18 7 1 1

13 5 2 1

10 3 3 1

8 2 4 1 The cost of a worker is $250 a week, and the cost of owning and operating a machine is $1000 a week. What is the price ratio? How many machines should the firm substitute (best rate of substitution)? Hogs grow best when grain and protein are mixed to obtain the proper protein level. However, they will grow on most any mix of corn and protein. The following rations will all produce about 950 pounds of grain when fed to a pen of ten, 155-pound pigs. If corn costs 3.5 cents/pound and supplement costs 9 cents/pound, what is the least cost ration?

Ration Lbs. Corn TC of Corn (.035)

Lbs. Protein (.09) TC of Protein Total Cost of

Ration A 3500 100

B 2990 300

C 2560 500

D 2200 700

E 1900 900



If corn costs 4.3 cents/pound and supplement costs 8 cents/pound, what is the least cost ration?



Ration A 3500 100

B 2990 300

C 2560 500

D 2200 700

E 1900 900

A farmer typically uses dried distillers grain that has 10% moisture; however, he has decided to try substituting this grain for wet distillers grain that has 70% moisture. He would like to know the nutrient equivalent price for the wet distillers grain before he makes the switch. The dry distillers grain sells for $140 per ton. What is the nutrient equivalent price for wet distillers grain with 70% moisture? If dried distillers grain has 10% moisture and sells for $130 per ton, what would be the nutrient equivalent price for wet distillers grain which has 65% moisture?


Economic Principles in Agribusiness: Substitution EP3.1 KEY

Best Rate of Substitution A business has decided to substitute workers for machines. Figure the MRS.

Number of Workers

Number of Workers Replaced

Number of Machines

Number of Machines

Added

Marginal Rate of Substitution

25 0

18 7 1 1 7/1 = 7

13 5 2 1 5/1 = 5

10 3 3 1 3/1 = 3

8 2 4 1 2/1 = 2 The cost of a worker is $250 a week, and the cost of owning and operating a machine is $1000 a week. What is the price ratio? $250/$1000 = 4 How many machines should the firm substitute (best rate of substitution)? 2 – If they substitute more, the marginal rate of substitution will be less than the price ratio. MRS should always be greater than or equal to PR. Hogs grow best when grain and protein are mixed to obtain the proper protein level. However, they will grow on most any mix of corn and protein. The following rations will all produce about 950 pounds of grain when fed to a pen of ten, 155-pound pigs. If corn costs 3.5 cents/pound and supplement costs 9 cents/pound, what is the least cost ration? A



Ration

A 3500 3500 x .035 = 122.5 100 100 x .09 = 9 131.5

B 2990 104.65 300 27 131.6

C 2560 89.6 500 45 134.60

D 2200 77 700 63 140

E 1900 66.5 900 81 147.5


Economic Principles in Agribusiness: Substitution EP3.1 KEY

If corn costs 4.3 cents/pound and supplement costs 8 cents/pound, what is the least cost ration?



Ration A 3500 150.5 100 8 158.5

B 2990 128.57 300 24 152.57

C 2560 110.08 500 40 150.08

D 2200 94.6 700 56 150.60

E 1900 81.7 900 72 153.70 A farmer typically uses dried distillers grain that has 10% moisture; however, he has decided to try substituting this grain for wet distillers grain that has 70% moisture. He would like to know the nutrient equivalent price for the wet distillers grain before he makes the switch. The dry distillers grain sells for $140 per ton.

• If the dried distillers grain has 10% moisture, there is 90% dry matter. • If the wet distillers grain has 70% moisture, there is 30% dry matter. • .90 = .30

140 x • .90x = 42 • x = $46.67 per ton

What is the nutrient equivalent price for wet distillers grain with 70% moisture? $46.67 per ton If dried distillers grain has 10% moisture and sells for $130 per ton, what would be the nutrient equivalent price for wet distillers grain which has 65% moisture? $50.55 per ton

• If the dried distillers grain has 10% moisture, there is 90% dry matter. • If the wet distillers grain has 65% moisture, there is 35% dry matter. • .90 = .35

130 x • .90x = 45.5 • x = $50.55 per ton



Substituting for an Improved School Step 1: As a class, identify the costs associated with running the agriculture department or school. The teacher may invite an administrator to class to assist with this process. Step 2: As a class, prepare an organized list of these costs for closer examination. It is suggested to group like items together: personnel, supplies, classroom equipment, extra duties, cafeteria expenses, etc. Step 3: Each student will use his/her knowledge of substitution to come up with the best way to cut costs at the school using the principle of substitution, but without sacrificing the high school experience.

• Students must identify a minimum of five substitutions and present a new and improved itemized list noting these changes.

• Students will prepare a one-page summary of each substituted item explaining how it serves as a cost saver, the pros of using the substituted item, why the item may enhance student experience, etc. The summaries should be typed using a 12-point font and be double spaced.

Step 4: Each student presents his/her five substitutions and summaries to classmates. When all presentations are concluded, students will vote for the top three best ideas presented. The student who receives first place will get 15 bonus points, second place 10 bonus points, and third place 5 bonus points. Substituting for an Improved School Scoring Guide New and improved itemized list of school expenses clearly shows the five items substituted and their associated prices. 25 points 20 points 15 points 10 points 5 points 0 points Each one-page summary uses 12-point font, is double spaced, and adequately justifies the reasons for this improved substitution. Reasons are based upon facts, actual prices, and not merely personal opinion. Summary 1: 20 points 15 points 10 points 5 points 0 points Summary 2: 20 points 15 points 10 points 5 points 0 points Summary 3: 20 points 15 points 10 points 5 points 0 points Summary 4: 20 points 15 points 10 points 5 points 0 points Summary 5: 20 points 15 points 10 points 5 points 0 points Total points possible: 125 Bonus points: 15 points 10 points 5 points Total __________/125



Substitution of Inputs Evaluation

1. How many items may be substituted by a single input?

a. Only one b. Very few c. Usually several, depending on what the input is d. None of the above

2. When is variable substitution used?

a. When one unit of input will take the place of a set amount of another unit of input b. When one unit of input will take the place of different amounts of another input c. When prices are the same d. None of the above

3. If dried distillers grain has 10% moisture and sells for $180 per ton, what would be the

nutrient equivalent price for wet distillers grain which has 65% moisture? a. $42.00 per ton b. $46.67 per ton c. $55.56 per ton d. $70.00 per ton e. None of the above

4. If corn costs 3 cents/pound and supplement costs 9 cents/pound, what is the least cost

ration? a. Ration A b. Ration B c. Ration C d. Ration D e. Ration E

Ration Lbs. Corn Lbs. Protein

A 3500 100 B 2990 300 C 2560 500 D 2200 700 E 1900 900

5. If corn costs 4.3 cents/pound and supplement costs 8 cents/pound, what is the least cost

ration? Use the chart above. a. Ration A b. Ration B c. Ration C d. Ration D e. Ration E



6. Purchasing a large piece of machinery in order to reduce the cost required to complete a particular operation is feasible if ________________________.

a. the savings in labor is less than the cost of owning the larger machine b. there is sufficient capital available c. the cost of owning the larger machine is less than the savings in labor d. the savings in labor is equal to the cost of owning the larger machine

7. The reason for using the substitution principle in deciding upon the right combination of

feed stuff to use is ______________________________________. a. to maximize cost b. to maximize profit c. to reduce fixed costs d. None of the above

Economic Principles in Agribusiness: Substitution Notes Page Substitution/EP3 Activity Sheet...

Documents

Transcript of Economic Principles in Agribusiness: Substitution Notes Page Substitution/EP3 Activity Sheet...