Agricultural Economics

Total cost is the complete cost of producing a given quantity of output, equal to the sum of all fixed costs and all variable costs incurred. The practical question it answers: adding everything up — what the land costs, what the fertiliser costs, what everything costs — what is the full bill for this season’s

Variable cost is any cost that rises and falls directly with the level of output produced, reaching zero if nothing is produced at all. The practical question it answers: which expenses only get incurred because the farm decided to plant this crop or raise this herd? Variable cost is the second half of the split,

Fixed cost is any cost that does not change with the level of output produced in the short run, and must be paid whether the farm produces a large harvest, a small one, or nothing at all. The practical question it answers: which expenses keep coming due no matter what happens this season? Fixed cost

Cost of production is the total economic value of all resources used to produce a given quantity of output, including not just cash expenses but also the opportunity cost of resources the producer already owns, such as land and unpaid family labour. The practical question it answers: what does it really cost, in full, to

Economic efficiency is achieved when a producer simultaneously gets the maximum possible output from its inputs and combines those inputs in the cheapest way possible given current prices. The practical question it answers: putting physical performance and cost management together, how well is a farm actually doing overall? Economic efficiency is the product of the

Allocative efficiency is achieved when a producer uses the combination of inputs that minimises the cost of producing a given output, given the prevailing prices of those inputs. The practical question it answers: even if a farm is squeezing the most output possible from its resources, is it using the right mix of resources given

Technical efficiency is the ability of a producer to obtain the maximum possible output from a given bundle of inputs, given the current state of technology. The practical question it answers: with the land, labour, capital and seed a farm already has, is it actually producing as much as those resources allow? Technical efficiency measures

Diseconomies of scale occur when a business’s average cost per unit of output rises as it grows larger, the opposite of the cost savings described by economies of scale. The practical question it answers: is there a point at which getting bigger actually makes a farm more expensive to run, per unit produced? Diseconomies of

Economies of scale are the reductions in average cost per unit of output that occur as a business increases its scale of production, expanding every input roughly in proportion. The practical question it answers: does it get cheaper, per unit, to grow bigger? Economies of scale describe the long-run behaviour of a Production Function, in contrast

Diminishing marginal returns is the tendency for the additional output gained from each extra unit of a variable input to shrink once that input is combined with a fixed resource beyond a certain point. The practical question it answers: why doesn’t doubling the fertiliser, or doubling the workers, double the harvest? Diminishing marginal returns is