OK Wheat Many farms graze cattle on wheat from fall until the end of February or beginning of March

OK Wheat First Hollow Stem Advisor at Mesonet.org on 2/18/15 Remove cattle from wheat when the first hollow stem appears on the wheat

OK Wheat Value of the wheat harvested Many farms graze cattle on wheat from fall until the end of February or beginning of March Value of the cattle weight gained from grazing

OK Wheat Variable inputs: inputs which increase as you increase production Variable costs: costs that rise as you increase production

OK Wheat Major variable inputs Fertilizer (nitrogen, phosphorus, potassium) Pesticides Machinery expenses

OK Wheat Fixed inputs: inputs which do not increase as you increase production Fixed costs: costs that do not rise as you increase production Are many fixed costs, like land, that are not specified

OK Watermelon Major variable inputs Disease control Harvesting/Marketing Other

OK Watermelon Types of fixed costs are similar to wheat … many fixed costs not specified

5.4. Costs, revenues, and profits Question 8 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Cost of nitrogen application ($ / acre) Total fixed costs ($ / acre) Total variable costs ($ / acre) NO 0.00 $ - ? Yes 23.00 10.00 25.00 $ 50.00 20.00 30.50 30.00 33.00 40.00 35.00 $ 4.00 50.00 36.00 $ 65.00 60.00 36.20 Price of wheat 4 $ / bushel Price of nitrogen 0.1 $ / lb Fixed costs 50 $ / acre Other variable costs 60

Wheat yield (bushels / acre) 5.4. Costs, revenues, and profits Question 8 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 ? $ (50) Yes 23.00 10.00 25.00 $ 100.00 20.00 30.50 30.00 33.00 40.00 35.00 $ 114.00 50.00 36.00 $ 29.00 60.00 36.20 Price of wheat 4 $ / bushel Price of nitrogen 0.1 $ / lb Fixed costs 50 $ / acre Other variable costs 60

5.4. Costs, revenues, and profits Question 8 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Cost of nitrogen application ($ / acre) Total fixed costs ($ / acre) Total variable costs ($ / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 $ - $ 50.00 $ (50.00) Yes 23.00 $ 60.00 $ 110.00 $ 92.00 $ (18.00) 10.00 25.00 $ 1.00 $ 61.00 $ 111.00 $ 100.00 $ (11.00) 20.00 30.50 $ 2.00 $ 62.00 $ 112.00 $ 122.00 $ 10.00 30.00 33.00 $ 3.00 $ 63.00 $ 113.00 $ 132.00 $ 19.00 40.00 35.00 $ 4.00 $ 64.00 $ 114.00 $ 140.00 $ 26.00 50.00 36.00 $ 5.00 $ 65.00 $ 115.00 $ 144.00 $ 29.00 60.00 36.20 $ 6.00 $ 66.00 $ 116.00 $ 144.80 $ 28.80

5.4. Costs, revenues, and profits Question 8 -50 or (50) (8.b) If we don’t produce any wheat our profits will be $_______ per acre. (8.c) If we produce wheat but don’t apply any nitrogen our profits will be $_______ per acre. (18) 50 (8.d) The profit-maximizing level of nitrogen use is __________ lbs N per acre, producing _______ bushels of wheat per acre and providing profits of $_______ per acre. 36 29

Wheat yield (bushels / acre) 5.4. Costs, revenues, and profits Question 9 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 $ 50.00 ? $ - Yes 23.00 $ 110.00 10.00 25.00 $ 111.00 $ 56.25 20.00 30.50 $ 112.00 30.00 33.00 $ 113.00 40.00 35.00 $ 114.00 50.00 36.00 $ 115.00 $ (34.00) 60.00 36.20 $ 116.00 Price of wheat 2.25 $ / bushel Price of nitrogen 0.1 $ / lb Fixed costs 50 $ / acre Other variable costs 60

5.4. Costs, revenues, and profits Question 9 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Cost of nitrogen application ($ / acre) Total fixed costs ($ / acre) Total variable costs ($ / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 $ - $ 50.00 $ (50.00) Yes 23.00 $ 60.00 $ 110.00 $ 51.75 $ (58.25) 10.00 25.00 $ 1.00 $ 61.00 $ 111.00 $ 56.25 $ (54.75) 20.00 30.50 $ 2.00 $ 62.00 $ 112.00 $ 68.63 $ (43.38) 30.00 33.00 $ 3.00 $ 63.00 $ 113.00 $ 74.25 $ (38.75) 40.00 35.00 $ 4.00 $ 64.00 $ 114.00 $ 78.75 $ (35.25) 50.00 36.00 $ 5.00 $ 65.00 $ 115.00 $ 81.00 $ (34.00) 60.00 36.20 $ 6.00 $ 66.00 $ 116.00 $ 81.45 $ (34.55)

5.4. Costs, revenues, and profits Question 9 (50) (9.b) If we don’t produce any wheat our profits will be $_______ per acre. (9.c) If we produce wheat but don’t apply any nitrogen our profits will be $_______ per acre. (58.25) 50 (9.d) The profit-maximizing level of nitrogen use is __________ lbs N per acre, producing _______ bushels of wheat per acre and providing profits of $_______ per acre. 36 (34.00)

Wheat yield (bushels / acre) 5.4. Costs, revenues, and profits Question 10 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 $ 50.00 ? $ - Yes 23.00 $ 110.00 10.00 25.00 $ 111.00 $ 43.75 20.00 30.50 $ 112.00 30.00 33.00 $ 113.00 40.00 35.00 $ 114.00 50.00 36.00 $ 115.00 $ (52.00) 60.00 36.20 $ 116.00 Price of wheat 1.75 $ / bushel Price of nitrogen 0.1 $ / lb Fixed costs 50 $ / acre Other variable costs 60

5.4. Costs, revenues, and profits Question 10 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Cost of nitrogen application ($ / acre) Total fixed costs ($ / acre) Total variable costs ($ / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 $ - $ 50.00 $ (50.00) Yes 23.00 $ 60.00 $ 110.00 $ 40.25 $ (69.75) 10.00 25.00 $ 1.00 $ 61.00 $ 111.00 $ 43.75 $ (67.25) 20.00 30.50 $ 2.00 $ 62.00 $ 112.00 $ 53.38 $ (58.63) 30.00 33.00 $ 3.00 $ 63.00 $ 113.00 $ 57.75 $ (55.25) 40.00 35.00 $ 4.00 $ 64.00 $ 114.00 $ 61.25 $ (52.75) 50.00 36.00 $ 5.00 $ 65.00 $ 115.00 $ (52.00) 60.00 36.20 $ 6.00 $ 66.00 $ 116.00 $ 63.35 $ (52.65)

We should not produce any wheat! 5.4. Costs, revenues, and profits Question 10 (50) (10.b) If we don’t produce any wheat our profits will be $_______ per acre. We should not produce any wheat! (10.c) If we produce wheat but don’t apply any nitrogen our profits will be $_______ per acre. (69.75) ? (10.d) The profit-maximizing level of nitrogen use is __________ lbs N per acre, producing _______ bushels of wheat per acre and providing profits of $_______ per acre. ? ?

5.4. Costs, revenues, and profits Question 11 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Cost of nitrogen application ($ / acre) Total fixed costs ($ / acre) Total variable costs ($ / acre) NO 0.00 $ - $ 50,000.00 Yes 23.00 $ 60.00 10.00 25.00 $ 1.00 $ 61.00 20.00 30.50 $ 2.00 $ 62.00 30.00 33.00 $ 3.00 $ 63.00 40.00 35.00 $ 4.00 $ 64.00 50.00 36.00 $ 5.00 $ 65.00 60.00 36.20 $ 6.00 $ 66.00 Price of wheat 4.00 $ / bushel Price of nitrogen 0.1 $ / lb Fixed costs 50,000 $ / acre Other variable costs 60

Wheat yield (bushels / acre) 5.4. Costs, revenues, and profits Question 11 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Total costs ($ / acre) Revenues ($ / acre) Profits NO 0.00 $ 50,000.00 $ - $ (50,000.00) Yes 23.00 $ 50,060.00 $ 92.00 $ (49,968.00) 10.00 25.00 $ 50,061.00 $ 100.00 $ (49,961.00) 20.00 30.50 $ 50,062.00 $ 122.00 $ (49,940.00) 30.00 33.00 $ 50,063.00 $ 132.00 $ (49,931.00) 40.00 35.00 $ 50,064.00 $ 140.00 $ (49,924.00) 50.00 36.00 $ 50,065.00 $ 144.00 $ (49,921.00) 60.00 36.20 $ 50,066.00 $ 144.80 $ (49,921.20) Price of wheat 4.00 $ / bushel Price of nitrogen 0.1 $ / lb Fixed costs 50,000 $ / acre Other variable costs 60

5.4. Costs, revenues, and profits Question 11 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Cost of nitrogen application ($ / acre) Total fixed costs ($ / acre) Total variable costs ($ / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 $ - $ 50,000.00 $ (50,000.00) Yes 23.00 $ 60.00 $ 50,060.00 $ 92.00 $ (49,968.00) 10.00 25.00 $ 1.00 $ 61.00 $ 50,061.00 $ 100.00 $ (49,961.00) 20.00 30.50 $ 2.00 $ 62.00 $ 50,062.00 $ 122.00 $ (49,940.00) 30.00 33.00 $ 3.00 $ 63.00 $ 50,063.00 $ 132.00 $ (49,931.00) 40.00 35.00 $ 4.00 $ 64.00 $ 50,064.00 $ 140.00 $ (49,924.00) 50.00 36.00 $ 5.00 $ 65.00 $ 50,065.00 $ 144.00 $ (49,921.00) 60.00 36.20 $ 6.00 $ 66.00 $ 50,066.00 $ 144.80 $ (49,921.20) Price of wheat 4.00 $ / bushel Price of nitrogen 0.1 $ / lb Fixed costs 50,000 $ / acre Other variable costs 60

5.4. Costs, revenues, and profits Question 11 (50,000) (11.b) If we don’t produce any wheat our profits will be $_______ per acre. (11.c) If we produce wheat but don’t apply any nitrogen our profits will be $_______ per acre. (49,968) 50 (11.d) The profit-maximizing level of nitrogen use is __________ lbs N per acre, producing _______ bushels of wheat per acre and providing profits of $_______ per acre. 36 (49,921)

5.4. Costs, revenues, and profits Question 12 Produce wheat? Nitrogen (lbs / acre) Wheat yield (bushels / acre) Cost of nitrogen application ($ / acre) Total fixed costs ($ / acre) Total variable costs ($ / acre) Total costs ($ / acre) Revenues ($ / acre) Profits ($ / acre) NO 0.00 $ - $ 10.00 $ (10.00) Yes 23.00 $ 80.00 $ 90.00 $ 80.50 $ (9.50) 10.00 25.00 $ 100.00 $ 87.50 $ (12.50) 20.00 30.50 $ 20.00 $ 110.00 $ 106.75 $ (3.25) 30.00 40.00 $ 30.00 $ 120.00 $ 140.00 $ 20.00 45.00 $ 40.00 $ 130.00 $ 157.50 $ 27.50 50.00 47.00 $ 50.00 $ 164.50 $ 24.50 60.00 43.00 $ 60.00 $ 150.00 $ 150.50 $ 0.50 Price of wheat 3.50 $ / bushel Price of nitrogen 1.0 $ / lb Fixed costs 10 $ / acre Other variable costs 80

5.4. Costs, revenues, and profits Question 12 (10) (11.b) If we don’t produce any wheat our profits will be $_______ per acre. (11.c) If we produce wheat but don’t apply any nitrogen our profits will be $_______ per acre. (9.5) (11.d) The profit-maximizing level of nitrogen use is __________ lbs N per acre, producing _______ bushels of wheat per acre and providing profits of $_______ per acre. 40 45 27.5

5.4. Costs, revenues, and profits (14) To maximize profits, a farmer does not apply the amount of nitrogen that maximizes yield. Why? Because that amount of nitrogen use causes fixed costs to rise. Because if we apply that much nitrogen, the last few lbs of nitrogen costs more than the additional revenues they provide. Because that much nitrogen would harm the crops and lower yield. Because that would result in so much wheat being produced that the price of wheat would fall. b, d

5.4. Costs, revenues, and profits (15) A farmer who applies however much nitrogen is needed to maximize yield is making the mistake of… …not thinking about the impact each lb of nitrogen has on yield. …not thinking about how higher yields reduce crop prices. …not thinking about the cost of nitrogen. …spending too little time thinking about how nitrogen use and fixed costs are correlated. a , c

5.4. Costs, revenues, and profits (16) A farmer should increase the amount of nitrogen she applies per acre of wheat… …whenever its marginal product is positive. …until the marginal product equals zero. …until the marginal product turns negative. …until it equals one. None of these.

5.4. Costs, revenues, and profits (17) Like a farmer applying nitrogen, a factory should increase labor hours so long as… …the factory is operating in stage 2 of production. …not thinking about how higher yields reduce crop prices. …the marginal product of labor is positive. …the value of the additional factory production is greater than the cost of the extra labor hours. a , c

5.4. Costs, revenues, and profits Question 13 Produce anything? Total Labor Hours Factory Production Labor Costs Revenues Profits NO ---------- $ (1,500,000) Yes 0.00 100.00 10,000 $ 1,000 1,000,000 $ (501,000) 200.00 13,000 $ 2,000 1,300,000 $ (202,000) 300.00 16,000 $ 3,000 1,600,000 $ 97,000 400.00 17,000 $ 4,000 1,700,000 $ 196,000 500.00 17,500 $ 5,000 1,750,000 $ 245,000 600.00 17,600 $ 6,000 1,760,000 $ 254,000 700.00 17,650 $ 7,000 1,765,000 $ 258,000 800.00 $ 8,000 $ 192,000 900.00 16,800 $ 9,000 1,680,000 $ 171,000 1000.00 16,500 $ 10,000 1,650,000 $ 140,000 Price factory receives for its product 100.00 $ / bushel Hourly price / wage paid to workers 10.00 $ / lb fixed costs 1,500,000 $ / acre other variable costs 0.00