Production

  • A firm’s ability to generate the cash necessary to meet cash obligations on time without impairing the future productive capacity of the firm is called?

Liquidity

  • What is “Cost of Production”?

The total cost of producing a physical unit of output. It is the same as Average Total Cost.

  • Name and define a balance sheet ratio which is used to measure liquidity.

The Current Ratio (The quick ratio would also be an acceptable answer)

  • Name the two accounting methods farmers can use to compute their taxable farm income.

Cash and Accrual

  • What is the maximum Section 179 “Expensing” that can be taken on a joint tax return filed by a married couple?

$10, 000

  • If a firm has a net Capital Ratio of 2, its debt/equity ratio will have a value of?

One

  • When the output from one enterprise can be increased with no change on the output from the other enterprise the enterprises are?

Supplementary

  • Which tax accounting method requires farmers to report changes in inventory values as taxable income?

Accrual

  • Name two “Economic Costs” which are not cash costs.

Depreciation and opportunity costs

  • A debt or obligation which must be paid in full within the next year is a ______.

Current Liability

  • What is the equation to find break even yield?

Total cost divided by output price

  • Fixed costs exist only over what time period?

Short run

  • In the short run, a farmer would continue producing a crop as long as there is sufficient income to cover what costs?

Variable costs

  • A useful tool for finding the present value of a stream of income to be received in the future is called?

Discounting

  • Over the range of input levels where Marginal Physical Product is increasing, marginal cost is?

Decreasing

  • What is the difference between Economics of Size and Economics of Scale?

Economics of scale implies output is increased by increasing all inputs proportionately. This restriction does not hold for Economics of size.

  • Would you maximize returns to the fixed or the variable factors of production?

Variable

  • Is there ever a case where a firm would not produce in the second stage of production?

Yes, budget constraint only enough input to be in stage I.

  • Is Maximum yield a good proxy for maximum profit?

No

  • Will new technology that increases yield of a crop increase the profit to farmers that produce that crop?

Depends on the price elasticity of the crop. In general, technology hurts farmers in the long run.

  • Should a farmer’s goal be to maximize output per unit of input?

No, maximize profits

  • Is a farmer that produces where the marginal value product is less than the marginal factor cost of an input losing money?

Yes

  • Should a farmer’s objective be to minimize costs and maximize profits?

No, you can only do one and to minimize cost would be to not produce at all so the objective is to maximize profit.

  • If a new technology, such as a new irrigation system, increases yield and income above variable costs are greater than the conventional system, should the new technology be adopted?

Depends on the investment – fixed costs must be considered in the evaluation and often is not justified even if the new technology is more efficient physically.

  • What is the relationship of marginal cost and marginal ohysical product?

MC = Px/MPP so marginal cost is minimum when marginal physical product is maximum

  • In discounting future returns to a present value, the higher the interest rate used the greater the present value of future returns.

The opposite is true for PV= (Return)/ (1 + i)^t. The interest rate in the denominator means a lower interest rate gives a higher present value.

  • What is the criteria for allocating a fixed amount of resource between two or more products?

Equate the MVP of the resource across all products assuming a set price per unit for the input.

  • Describe the point on a production function where a decision maker would maximize profit considering one input and one product.

The objective is find the point where MVP = Px. This can be rewritten as MPP= Px/Py or where the slope of the production function is equal to the ratio of Px to Py.

  • What is the relationship of a linear programming solution and risk?

The linear programming solution is the maximum risk solution; hence any risk aversion could be expected to give a solution other than the LP solution. Maximum profit is the maximum risk solution.

  • What is the effect of an increase in the price of a product on the expansion path (least cost combination) considering two inputs?

None, the expansion path is where the MPP per dollar for the inputs are equal.

  • If new technology shifts the production function laterally up with no change in shape, what is the effect on the profit maximizing amount of input to use?

None, if there is no change in price of the product, but an increase in output of the product can be expected that price of the product declines and then the MVP curve would shift to the left meaning less use of the input.

  • Why is Stage I considered a stage of irrational production?

Ratio of variable if fixed inputs is too small. By using less of the fixed input with the same amount of variable input, more output can be produced. This means that Stage I for the variable input is really stage III for the Fixed Input.

  • What is meant by a “shutdown price”?

Price where only the variable costs of production are covered.

  • Where does stage 2 of production begin?

Where average physical product (APP) is maximum

  • How did linear programming originate?

During WW2 as a method for allocating scarce resources to produce war goods.

  • Name the 3 financial statements that are important in the operation of business.

Balance sheet, cash flow statement, income statement, and statement of retained earnings.

  • What type of economic model reveals the various combinations of two inputs that produce the same output?

Equal-output curve

  • What is the lowest level of output at which average costs are minimized?

Minimum efficient scale

  • Name the 5 types of depreciation methods.

Straight line, declining balance, and sum of the years digits, MACRS, ACRS

  • On a cost basis balance sheet what assets are not valued at cost?

Depreciable assets

  • What is the cost of an asset minus the total accumulated depreciation?

Book value

  • What are the two types of production integration?

Vertical and horizontal

  • At what point is profit maximized?

MR=MC

  • What are the four basic types of farm budgets?

Partial, whole-farm, enterprise, cash flow

  • Why are most farmers considered price takers?

Because they cannot influence the price of commodities

  • Give the definition or equation for the Input Substitution Ratio.

The rate at which one input will substitute for another; change in the amount of input replaced divided by the change in the amount of input added.

  • The additional cost incurred from another unit of an input is called?

Marginal cost

  • How can farm output be increased when considering economies of size in the short run?

Because of fixed inputs such as land, output can be increased in the short run only by intensifying production: meaning the use of more variable inputs such as fertilizer, chemicals, irrigation water, labor, and machine time.

  • Name 5 areas of concentration used when conducting whole farm analysis.

Financial, profitability, farm size, efficiency, and enterprise

  • The most common sources of risk can be summarized into what 3 general types of risk?

Production, marketing, and financial

  • Identify 3 characteristics of the economic problem.

Goals and objectives, limited amount of resources, number alternative uses of those resources

  • When does a manger stop increasing his inputs?

When his marginal value product equals his marginal input costs

  • An estimation of all income and expenses associated with a specific operation is called a ______budget.

Enterprise

  • If you were given the profit function for a farm, how could you find the level of output that maximizes profit?

Take the derivative of the profit function with respect to the input X, set that equation equal to zero and solve for Q.

  • In a graph of the production function, and marginal and average physical product, at what point does stage II, end?

Where TPP is maximum or where MPP=0

  • What is book value?

Original cost minus depreciation

  • How many acres compose a section?

640 acres

  • What does the last digit in the soil classification “27C2” represent?

The degree of soil erosion

  • How many sections are in a standard township?

36 sections

  • The work that could be done by a tractor or implement working at top speed and under ideal, trouble-free conditions is called ______.

Theoretical field capacity

  • Combining two or more resources in such a way that costs are at a minimum is called ______.

Least cost combination

  • The ratio of pounds gained by an animal to the pounds of feed consumed by that animal is the ______.

Feed Conversion

  • If the farmer does not sell his commodity by the due date on the loan, the commodity becomes the property of the CCC in full payment of the loan is known as what type of loan?

Nonrecourse

  • Why is the PPF curve bowed out from the origin?

Law of increasing costs.

  • The highest valued alternative that must be sacrificed whenever one makes a choice is called the ______.

Opportunity cost

  • What happens to the PPF if the deteriorating capital is not replaced?

It shifts inward

  • In a linear programming equation, what do the right hand side ranges represent?

Amounts by which the resource capacities can be increased (decreased) without changing the activities in the optimum solution.

  • The rate at which one input will substitute for another is which ratio?

The input substitution ratio

  • Define Marginal Net Benefit.

Marginal benefit – marginal cost

  • What is the ability of a country to meet its domestic needs for a product without importing quantities from other countries known as?

Self-sufficiency

  • Define the relative cost ratio.

The ratio of the opportunity costs of producing one product instead of another.

  • Assets that are used in businesses for more than 1 year but less than 10 years are ______.

Intermediate assets

  • Give the equation for the break- even yield.

Total cost / output price

  • In what time period are production costs most elastic?

Long run

  • Why would a profit maximizing farmer chooses not to minimize costs?

Minimizing costs would call for producing nothing and only incurring fixed costs which would render no profits.

  • In what stage of production is MPP greater than APP?

Stage I

  • Name 2 different methods of investment analysis.

IRR, ROI NPV, Partial budgeting

  • Recording cash when it changes hands and not when the products are bought or sold is called ______.

Cash accounting

  • When you do not have any influence on the price of your product you are considered a ______.

Price Taker

  • What is the formula for APP?

TPP / inputs

  • What is the formula for MVP?

Change of TVP / change in inputs

  • In a supplementary enterprise relationship, one output is increased while doing what to the other output?

Without changing the other output

  • What is the coordination and supervision of a farm business in order to increase long-term profits or to achieve other specified goals?

Farm management

  • What type of farm ownership is most prevalent?

Individually owned (86.6%)

  • What is the term used to describe the capability to continue producing food and fiber indefinitely and profitability without damaging the natural resources and environmental quality?

Sustainable agriculture

  • ______is defined as the change in total input cost or the addition to total input cost caused by using an additional unit of input.

Marginal input cost

  • What is ACRS?

Accelerated Cost Recovery System. Depreciation method that is used for tax purposes.

  • When should a firm produce in stage III?

Never

  • What is the major disadvantage of corporations?

Double taxation

  • The current ratio is used to ______a company’s liquidity.

Measure

  • In the short run, a farmer will continue to produce as long as income covers ______.

Variable Cost

  • A manager stops increasing input when ______.

MVP = MIC