FM concepts.ppt1 concept, production, Types

Farm concept which includes various sources

1. Basic Concepts in Farm Management Production Types of Resources Choice Indicators Costs, Revenues and Profits Total, Average and Marginal Concepts

2. Resources Resources are any agents which are used in the production process. Agricultural resources can be classified as Fixed and variable resources

3. Fixed and variable resources Fixed resources: quantity of resources remain unchanged during the process of production Variable resources: which is liable to change during the production process and the same varies with the level of output.

4. Stock and flow resources Stock Resources: Such resources and their characteristic is that they can be stored for a later period. (Seed, fertilizer) Flow resources: Resources/factors of production which give only flow services. (Building and Family labour) Resources which have the characteristics of both flow and stock resources. (Land, farm equipment and machinery)

5. Output or product During the production process, the resources get transformed into what is termed as output or the product. One product may become a resource for another product.

6. Total product It is a concept used to signify all the output or produce of a single commodity. It measured in tonnes or quintals on the entire farm.

7. Revenue Revenue or gross income refers to the money value of output. Total and average revenue. Total revenue is synonymous with total value product. TR = Py1 y1 + Py2 y2 + …+ Pyn yn Average revenue is defined as the value per unit of output. In case of a single product y1, TR = Py1y1 and from this the average revenue (AR) can be easily derived, i.e., AR = Py1 y1/y1 = Py1

8. Costs The term "cost" refers to the outlay of money for productive services. Total costs: Money value of all the inputs used on a certain farm during a given planning period, season or year, is termed as the total cost. TC = Px1 x1 + Px2 x2 + … + Pxn xn

9. fixed and variable costs Fixed costs are those costs which are not a function of output. Land revenue, taxes, rent and interest on capital for the use of fixed resources. Variable costs constitute the outlay of funds that are a function of output in a given production period, i.e., they vary with the level of output. seed, fertilizers, insecticides, casual labour, fuel and oil, feeds, etc., are a few examples of variable costs. TC = TFC + TVC

10. Marginality Marginal refers to an additional unit. Δ to mean change in, then Δ y and Δ x represent change in y (output) and change in x (input). Marginal Physical Product (MPP) It is defined as the change in output (y) due to a unit change in the input (x) at the margin. Mathematically, MPP = Δ y / Δ x

11. Marginal Value Product (MVP) This represents a change in total value product (TVP) due to an additional unit of input (x). Thus, MVP = Δ TVP / Δ x "Value marginal product" (VMP) is the value of the marginal physical product, i.e. if py is the per unit price of product, VMP = Δ y / Δ x * py

12. Marginal Cost (MC) This is defined as the change in total cost (TC) due to an additional unit of the output (y). Mathematically, MC = Δ TC / Δ Y Marginal Input or Marginal Factor Cost (MIC or MFC) Marginal Factor cost or marginal input cost (MIC), implies a change in the total cost due to the use of the last unit of input (x), i.e. MFC = Δ TC / Δ x

13. Marginal Revenue (MR) . The change in total revenue (TR) due to the last unit of output (y) is term­ed as marginal revenue. Mathematically, MR = Δ TR / Δ y It is synonymous with the per unit price of output (py) or average re­venue under perfect competition.

14. Elasticity of Production It helps to measure the responsiveness of the output to input and is independent of units. E p = % Δ y / % Δ x 1 , =

15. Other Applied Cost Concepts Four Major Cost Concepts Cost A1 Cost A2 Cost B Cost C

16. Cost A1 All paid out costs or expenses incurred either in cash or kind, hired labour, bullock labour, Seed, manure( both purchased and farm produced), irrigation charges, interest paid in cash on crop loan, Depreciation of implements and other implement maintenance charges. Cost A2 When rent paid on leased in land is added to cost A1, one gets cost A2. ( Cost A1 + rent paid on leased in land ) Thus, this concept of cost constitutes all the paid out costs of a tenant framer.

17. Cost B Adding the imputed values of rent on owned land of the farmer and interest on the owned fixed capital to the cost A2 on his farm. Cost C With the final addition of the imputed value of farm family labour to cost B, one obtains this concept of cost C. C concept is synonymous with the total cost concept of any farm.

18. Gross margin For an enterprise, the gross margin (GM) may be defined as follows: GM = Total value product of the enterprise – variable cost attributed to it. Gross margin is also termed as gross profit or "returns over variable costs' in the economic literature.

19. Farm profit (or loss) One of the important objectives of farm management is to maximize the farm profits on a continuous basis. Mathematically, "farm profit" concept is π = TVP-TC = TVP- (TFC+ TVC) or π = (TVP- TVC) -TFC = GM - TFC

20. TVP = total value product TC = total cost. TFC, TVC and GM are the total fixed costs, total variable costs and gross margins respectively. Alternatively, TVP obtained by deducting cost C form the gross income. In a strict economic sense the farm profit is termed as net profit or net income.

21. Technical efficiency The prices either of inputs or the out put not taken into account. Only physical quantities of inputs and output are considered. Two methods Physical ratio of product or output to the quantity of the variable input used for this production. Yields per unit of the variable factor of production

22. Ctd….. 2. Ratio of product or output to input of fixed factor. Maximum yield per acre, eggs per hen or milk per cow.