Think Break #20 Suppose you are a corn-soybean farmer who currently custom hires all combining. You are thinking of buying a combine. Do a partial budget analysis of a Combine Purchase vs. Custom Hire decision Needed assumptions/information and questions are given in the next slide

Think Break #20 Combine Purchase vs. Custom Hire Corn acres = 2,000; Farm acres 4,000 Custom Rate = $25/ac Scale Factor = 1.241 + (33.026/acres) 1% yield increase with more timely harvest Average yield = 150 bu/ac; Price = $4/bu 1) What will be the new or added revenues? 2) What costs will be reduced or eliminated? 3) What will be the new or added costs? 4) What revenues will be reduced or lost? 5) What’s the net benefit?

Think Break #20: Answer 1) What will be the new or added revenues? 0.01 x 150 bu/ac x $4/bu x 2,000 ac = $12,000 2) What costs will be reduced or eliminated? $25/ac x 2,000 ac = $50,000 3) What will be the new or added costs? Scale Factor: 1.241 + (33.026/4000) = 1.249 1.249 x $25/ac x 2,000 ac = $62,450 4) What revenues will be reduced or lost? None 5) What’s the net benefit? $12,000 + $50,000 – $62,450 = – $450

Partial Budget: Think Break # 20: Combine Purchase vs Custom Hire Benefits Costs Additional Revenues 0.01 x 150 bu/ac x $4/bu x 2,000 ac = $12,000 Additional Costs Scale Factor: 1.241 + (33.026/4000) = 1.249 1.249 x $25/ac x 2,000 ac = $62,450 Costs Reduced $25/ac x 2,000 ac = $50,000 Revenues Reduced none Total Benefits $62,000 Total Costs $62,450 Net Benefit – $450