Directions: Please Answer All Items on This Homework. You May Do All Graphing on a Computer

Ag Bus 322

Homework 2

125 Points

Due: 10/26/17

Dr. Hurley

Directions: Please answer all items on this homework. You may do all graphing on a computer. But, realize you will not have a computer for the exam, so do not blindly trust the computer to do most of your work. You must show all your work.

1. Using the enterprise budget for Fresh Bell Pepper Production located at using table two as your basis, please answer the following: (25 Points)

1. Calculate the following using a price of $12.00 per carton and an initial yield of 1,100cartons per acre:
2. Short-run breakeven quantity in cartons per acre,
3. Short-run breakeven price in dollars per carton,
4. Long-run breakeven quantity in cartons per acre,
5. Long-run breakeven price in in dollars per carton.

1. Develop a short-run and long-run net returns sensitivity chart for yields and prices. (To do this analysis, please adjust prices and yield by 10% of the original value up to 150% above and 50% below normal.)

1. Please explain what each chart is telling you.

1. Which price–yield combinations would you shutdown the business? Please explain.

1. Do you see a correlation between the chart you made in part b and your answers from part a? Please explain.

1. Suppose you have just taken over your grandfather’s tomato farm. Having reviewed his records, you have found some notes regarding the costs of operating the farm. All the information you found has been in summary format related to costs. These costs are for one-hundred acres of tomatoes. You know that on average you should get 50 tons per acre. Currently the contract price on tomatoes is $30 per ton. Using the information from Table 1 below, please develop an enterprise budget and answer the questions below. (30 Points)

Table 1

Assessment Charges (Variable) / $29,000
Contract Labor / $3,000
Crop Protectant / $1,000
Custom work / $19,000
Depreciation on Machinery, Building, and Equipment / $7,000
Fertilizer / $6,000
Fungicide / $3,000
Herbicide / $20,000
Insecticide / $5,000
Interest / $1,000
Irrigation / $19,000
Rent on Land / $20,000
Seeds / $8,000
Taxes / $2,000
Transplants / $20,000

a)What are the returns above variable costs per acre?

b)Should you produce this year? Please explain.

c)Is this farm profitable at $30 per ton in the short and the long-run? Please explain.

d)What happens if price drops by $5 per ton down to $25 per ton? Would you still produce? Please explain.

e)What missing information would have been helpful for developing a better enterprise budget? Please explain.

f)Are there any missing items that should go into the fixed costs? Please explain.

1. Suppose you are a Lima Bean farmer trying to decide whether you want to change 500 acres of your Baby Lima Beans enterprise into 500 acres of your Large Lima Beans enterprise. Assuming that your fixed costs are not important, develop a partial budget using the following cost studies: Please use table two on both. Once you have developed the partial budget, you need to answer the following questions: (40 Points)

a)How much additional cost was incurred due to the change?

b)What was the biggest additional cost?

c)How much cost was reduced due to the change?

d)What was the biggest reduced cost?

e)How much revenue was lost due to the change?

f)How much revenue was gained due to the change?

g)Would you change 500 acres of small lima beans into 500 acres of large lima beans? Please explain using your partial budget you just put together.

h)Are there any considerations besides profitability that you should take into account when deciding whether to make the change? Please explain.

1. Suppose you are a farmer of 1000 acres. On these thousand acres, you have three crops. Currently you have allocated 400 acres of wheat, 300 acres of sweet corn, and 300 acres of lima beans. Due to the way your farm is set up you will only reallocate land in parcels of 50 acres. Having gone through your first negotiation of a contract with a major food retailer, you are looking at the following prices. The food retailer is willing to give you $0.40 per pound for your lima beans, $10.00 per carton for your sweet corn, and $120 per ton for your wheat. The cost of producing lima beans is $600.00 per acre and you know that you can get 25.0 hundred weights out of each acre. Your cost for producing corn is $2900.00 per acre and you are able to get 330 cartons per acre. Your cost for producing wheat is $145 per acre and you are able to get 4 tons per acre. (30 Points)

1. Since it appears that your profitability of producing wheat is going to be less than the other two crops, you want to develop a partial budget for the two alternatives:
2. Moving 100 acres of wheat into lima beans.
3. Moving 100 acres of wheat into sweet corn.

1. Based on pure profitability and the partial budgets you have just put together, which alternative would be best for you? Please explain.

1. What happens to your answer in part b if the yield for lima beans drops by 100 pounds? Please explain.

1. Using cost-benefit analysis, which alternative would be best for you under the initial setting? Please explain.

1. What happens to your answer in part d if the yield for lima beans drops by 100 pounds? Please explain.

1. Are there any other factors you should take into consideration when making this move? Please explain.

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Last revised: 9/20/17