Flashcards in Economics Deck (168):
Exports of rural origin make up about 60 per cent by value of Australia's export income. True or false?
True or false, a steady decline in productivity has caused the decline in farmers terms of trade.
False - caused by increased cost of living while their product prices remain the same.
Farmers terms of trade can be defined as the ratio of prices received by farmers to prices paid by farmers. True or false?
Australian farmers rely more heavily on purchased inputs than they did in the past. True or false?
Australia is essentially a rural society, we are not urbanised and we are culturally homogenous. True or false?
Agriculture contributes more than 10% to Australian gross domestic product. True or false?
False - only 3%
Most of Australia's rural exports go to Europe. True or false?
The decline in farmers terms of trade is also a measure of the cost price squeeze in agriculture. True or false?
True or false, the top 4 product groups, wheat, wool, cattle and milk make up 60% of gross value of farm production.
Exports of rural origin make up 60% of Australia's export income value. True or false?
The supply curve for peanuts slopes downwards to the right because large farms can increase their output so much easier than small farms can. True or false?
In the case where Py=MR=MC=ATC, profit must be zero. True or false.
A firm may choose to produce at a loss in the short run, and wisely so, if it is at least.....
Covering its variable costs.
The most profitable level of output is always where ATC is a minimum. True or false?
If ATC is $10 per unit, AFC is $6 per unit and average revenue is $5 per unit the firm should immediately cease production. True or false?
A family farm that is operated solely with the family's labour....
Cannot escape a labour cost in operating their farm.
Farmers tend to maintain output when prices have fallen because....
Agricultural production systems are constrained by biological factors.
Marginal costs are the costs relevant to a decision because they..
Are the only costs that will be affected by the decision.
The competitive firms short-run supply curve is also its...
MC curve above minimum AVC
Which of the following would cause the long run Riverina poultry supply to shift to the right?
Discovery of an inexpensive serum injection that makes broilers gain weight much more rapidly.
A peasant response to a decrease in the price of a major output is?
Continue to produce to meet their own needs.
If producers increase the quantity supplied in response to an increase in the price of their product, they will experience...
An increase in total revenue.
What is PPF?
Production possibilities frontier, graph showing opportunity cost.
True or false, marginal cost can also be viewed as the opportunity cost?
How do you determine marginal cost?
Change in total cost divided by the units of input.
What does a production function relate?
Physical output of a production process to physical inputs or factors of production.
What is the law of diminishing returns?
Used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.
How do you determine average physical product?
Output divided by input.
The opportunity cost of one more unit of a variable input is....
The same as the total variable cost.
The marginal cost is the amount that is added to total cost when another unit of the variable input is used. True or false?
A declining long run average cost curve indicate that economies of size are available. True or false?
Fixed costs that result from owning farm assets such as machinery include all but which of the following?
Fuel and lubrication
The time period which is short enough that the firm is able to vary the quantities of some (but not all) of its resources is called.
The short run
In perfect competition the competitive firms demand for a variable output is....
It's entire MR curve
A production function tells us....
Relationship between physical output compared to physical inputs or factors of production.
The marginal cost curve....
Will eventually increase as output is increased
Farmers would be fairly happy to make zero economic profit. True or false?
If the purchase price of an input decreases, a profit maximising farmer should...
Use more input and produce more output.
A production process requires at least one fixed input for the law of diminishing returns to be in effect. True or false?
Marginal cost, by definition, is the additional cost incurred in using another unit of input. True or false?
What is the average physical product produced at 25 units when output is 85?
Output divided by input.
One of the three factors of production including land and labour. Goods with the following features are capital; can be used in production of other goods, can be made by humans, not used up immediately in the production process.
To optimise the use of a variable input it should be used to the point where it's addition to costs just equals its addition to total revenue. True or false?
Marginal revenue is equal to the output price as long as that price is constant. True or false?
Doubling both input and output price will not change the profit maximising input and output level. True or false?
Marginal physical product is the addition to total physical product that is obtained by using one more unit of the variable input. True or false?
MC is equal to the change in TVC divided by the change in output. True or false?
The increase in MC that accompanies increased output occurs because of diminishing marginal productivity of the firms variable resources. True or false?
Marginal costs can be calculated by the change in total costs divided by the change in input. True or false?
A production function describes the relationship between resources and their product. True or false?
The law of diminishing productivity applies only to those production situations where all resources are variable. True or false?
The law of diminishing productivity states that 'as successive amounts of a variable input are combined with a fixed input, the total product will increase, reach a maximum, and eventually decline'. True or false?
To compute marginal cost you would use...
Change in total cost divided by change in output.
Diminishing marginal returns occurs due to biological limitations. True or false?
As a general rule, if the price of the output increases, you should use more input to maximise profit. True or false?
A family farm that is operated solely with that family's labour...
Cannot escape a labour cost of operating the farm
When another unit of a variable input will add more to total revenue then it costs to use, that unit of input...
Is one whose MR is greater than its MC
MPP can never be negative. True or false?
Stage II of the production function is that part of the function where both APP and MPP are positive and declining. True or false?
Depreciation is classified as a cash cost. True or false?
The law of diminishing marginal returns means that as the level of input is increased....
The amount of product produced increases more slowly than the amount of input used.
In the short run....
Total variable costs are zero when there is no production
Marginal physical product is...
The units of output produced by one more unit of input.
The dividing line between stage I and stage II is determined on a production function graph at....
The point of maximum APP
It is possible for the opportunity cost of an input to be very low or zero if there is no alternative use for it. True or false?
Total variable cost must always increase as the firms output is increased. True or false?
For an owner-operated firm, it's total cost of production for any given output is....
Equal to its explicit costs plus implicit costs.
Which of the following would not cause economies of size to result if a particular farm or ranch expanded production?
Travel time to transport crops or dispose of manure is increased.
When APP is increasing, MPP will be less than APP because of diminishing productivity. True or false?
Both fixed and variable costs exist in the short run. True or false?
At the level of input and output where marginal revenue is equal to marginal cost, profit will always be positive. True or false?
Stage III of the production function is characterised by a negative APP. True or false?
The cost of producing an additional unit of output is...
ATC will decrease at first, then increase as more and more output is produced. True or false?
Diminishing marginal productivity results from changing input proportions. True or false?
MR is greater than AR within stage II of the production function. True or false?
If MPP is less than APP, then APP is.....
Implicit costs are the same as opportunity costs. True or false?
The marginal product of a resource is measurable in physical terms but not in value terms. True or false?
Fixed costs, by definition, is the cost of producing more units of output. True or false?
Because it is possible for resources to be combined in many different ways, it is not possible to determine the marginal productivity of any single one of them. True or false?
A production function is in the amount of physical product obtained with different....
Levels of input
Variable costs such as seed and fertiliser that have already been paid for and applied are called sunk costs. True or false?
To maximise total profit, farms or ranches should produce the level of output at which average total cost per unit is manimised. True or false?
There are increasing returns to size whenever increasing the output of the business results in...
A smaller average cost per unit of output.
Labour can either be a cash expense or an opportunity cost. True or false?
When average physical product begins to decrease, you should stop adding more fertiliser. True or false?
AFC is constant as output increases. True or false?
At the output level where MC is just equal to ATC....
ATC is at its minimum value
Interest is included as a variable cost on a gross margin budget as...
An opportunity cost on variable costs regardless of whether borrowed or equity capital will be used.
Gross margin budgets are useful when selecting enterprises to include in a whole farm plan. True or false?
Ownership or fixed costs for farm buildings does not include..
Which of the following would be a fixed cost and excluded on a typical crop gross margin budget?
It is safe to assume that the input levels shown on published gross margin budgets are the profit maximising amounts. True or false?
True or false, there are no opportunity costs on a gross margin budget.
There is only one possible gross margin budget for each enterprise. True or false?
A gross margin budget lists all the returns and expenses associated with producing a unit of a given enterprise. True or false?
For a given total cost, the higher the yield, the lower the break even price. True or false?
Permanent labour and machinery costs are fixed because....
Accurate figures in relation to labour and machinery use require time consuming and detailed records.
Which of the following terms, if used on a gross margin budget, would be considered the same as variable cost?
Only cash revenues are included on a gross margin budget. True or false?
A crop gross margin budget containing all economic costs would include an entry for...
All of the above
If fixed costs on an enterprise budget were to increase, the market price needed to break even would increase. True or false?
In a farm enterprise a common unit of production is....
Land area of pasture
The equation for break even yield is total cost divided by selling price. True or false?
The cost of production is the same as average total cost. True or false?
The cost of production is computed from the equation....
Total cost divided by output
If the cost of production is greater than the selling price, the revenue from e enterprise will be less than the total economic costs, true or false?
A partial budget is an appropriate tool for analysing....
The expansion of an existing enterprise
If a partial budget shows some fixed or ownership costs under reduced costs, it means...
The proposed alternative would allow sale of a capital asset that will no longer be needed.
On a partial budget, costs and returns must be included for all enterprises on the farm. True or false?
On a partial budget which analyses switching 120 acres from growing wheat to growing barley, which of the following costs should not be included on the budget?
Property tax on the land
Which of the following are the profit decreasing changes on a partial budget?
Additional costs and reduced revenue
True or false, opportunity costs are never included on a partial budget.
Which of the following are the profit increasing changes on a partial budget?
Reduced costs and additional revenue
A single partial budget can analyse up to four alternatives, true or false?
The values shown on a partial budget are...
Only changes in revenue and expenses
Only changes in variable or operating costs are included on a partial budget. True or false?
A partial budget can be used to evaluate one specific change in an operation. True or false?
Not all partial budgets will need to include some fixed ownership costs. True or false?
Fixed costs are never included on a partial budget, true or false?
Most partial budgets will need to include some opportunity costs, true or false?
A partial budget would be the most useful type of budget for estimating...
The change in profit from installing an irrigation system in one field.
A partial budget analyses only two management alternatives at one time, true or false?
Change in profit is the only factor to consider when looking at the results of a partial budget. True or false?
Changing a crop rotation to plant 80hectares more barley and 80 hectares less wheat would be a excision which could be analysed using a partial budget. True or false?
Only cash expenses are shown on a partial budget. True or false?
The better alternative as shown on a partial budget is sure to be the one which maximises profit for the business. True or false?
If the partial budget includes purchasing a new machine, there should be additional fixed costs in the budget. True or false?
A partial budget includes only those costs and revenues which change if the proposed alternative is adopted. True or false?
Will all partial budgets contain some fixed costs?
Not all, if the proposed change doesn't include any changes in capital assets owned then there will be no change in fixed costs.
Why are opportunity costs included in partial budgets?
A proposed change analysed in a partial budget may require a large increase or decrease in the amount of labour, capital, or management used. Some of these may be provided by the farm operator and have no direct costs.
Assume a proposed change would reduce labour requirements by 200 hours. If this was the farm operators labour rather than hired hourly labour, would you include a reduced cost for labour? What factors would determine the value to use?
Yes, there is an opportunity cost for the operators labour and depends on the possible alternative uses for the farmers time.
True or false, partial budgeting can be used to develop a whole farm plan.
Besides additional profit, what other factors should a farm operator take into account when evaluating a proposed change?
Price, yield, risk, additional capital requirements, additional management skills, timing of cash flows, availability of new or additional resources.
Draw up a partial budget.
Problem at top, on left have additional revenue and reduced costs.
Right side have additional costs and reduced revenue.
At bottom calculate net change in profit (Left minus right).
How do you determine the break even point?
make p=probability x and 1-p=probability y
EMV is expected monetary value and is determined by the sum of probability x value
How do you determine gross margin?
Gross income - variable costs
What is the difference between technical and economic efficiency?
Technical is output/input where as economic is value of output/cost of inputs
How do you determine ATC?
Total costs/total input
Do gross margins include fixed costs?
What is decision analysis?
Formalised approach to a series of methods to help rationalise decisions in an uncertain world.
Effort required depends on importance of decision, cost of the analysis, resources available.
Discuss the advantages and disadvantages of formal decision analysis.
Focuses formal thinking, exposes hidden assumptions and makes clear logical implications, provides effective vehicle for communicating the reasons underlying recommendations.
Requires time and effort, estimates are often crude and subjective, often uncertainty over best decision criteria to use.
What is a good decision? Give an example of a good decision with a poor outcome.
Good decision is choice based on rational interpretation of the available information.
A good decision may not be the correct decision.
Good decision to jet sheep for fly strike due to wet winters but then end up having a dry one.
What is expected monetary value?
Weighted average of all possible states of nature.
Sum of Probability1 x value1 + P2 x V2
Action with highest EMV is selected. Can be 0.
What is another equation that can be used to determine break even?
Price x quantity = AVC x quantity + fixed costs
How do you determine AFC?
How do you determine AVC?
How do you determine ATC?
When should a business shut down?
When they can no longer cover their fixed costs
What are economies of scale?
Occur when all the resources are increased in constant proportions. Typically result from the division of labor and indivisibility.
Three veterinary clinics in the same town merge. Output increases, explain why.
Economies of scale, benefits come from the division of labour.
A farmer buys 200ha from the neighbours and does not need any additional machinery. Explain why the profitability might improve.
Proportions of he business have changed, resulting in economies of size. There is now excess capacity in the farmers machinery, merge may have reduced competition.
What kind of market is agriculture?
What can the producer do in a monopoly?
How do you calculate % change in output?
(Production after - production before)/production before
How do you calculate % change in variable costs?
(VC after - VC before) / VC before X 100
Describe the law of diminishing marginal productivity.
When variable costs rise faster than output.
How can profit increase despite an increase in costs?
Occurs when fixed costs are under-utilised, as production increases so do variable costs. Fixed costs remain constant and AFC will fall as production increases as they are spread over more units of output.
What would marginal analysis indicate about optimal stocking rate and level of input?
Profit is maximised when MR=MC.
As long as MR exceeds MC the input level should be increased.
True or false? Technical efficiency is the efficiency with which physical inputs create physical output.
True or false, economic efficiency examines the efficiency with which cost of inputs are transformed to valuable outputs. This produces goods that are most valuable to humans at the lowest cost.
Describe the relationship illustrated by a production function.
Production is the transformation of inputs (land, labour, capital) into goods and services. The actual relationship between an input and output is displayed on a production function. Illustrates the maximum output that can be achieved with a given level of an input, assuming all other inputs are fixed.
How do fixed and variable inputs differ?
Fixed inputs do not vary with the level of output. Variable inputs do.
In the long run, what happens to fixed inputs?
No fixed inputs in the long run.
Quantity of all inputs can potentially be varied.
What is the law of diminishing returns?
Law states that each successive unit of output tends to result in smaller increases in output. Occurs in all production systems as the output becomes constrained by the other inputs.
Total revenue is equal to what?
Price x TPP