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Samenvatting Economics of Agribusiness - AEP33306 (AEP33306) $8.02   Add to cart

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Samenvatting Economics of Agribusiness - AEP33306 (AEP33306)

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  • July 10, 2024
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Economics of Agribusiness

Week 1
Agriculture and horticulture = industries producing agricultural and horticultural products.

Agri-complex / agribusiness (food industry)
● Based on domestically produced raw products
● Based on domestically produced and imported raw products

Value added
● Net versus gross value added by firm or industry
● Net and Gross Domestic Product = national sum of value added
● National Income = GDP corrected for net income earned abroad
Notes
- External effects are not taken into account (e.g. pollution)
- Income is not utility
- Income distribution is not taken into account
- Non-valued production is not taken into account (e.g. raising children)

GDP - capital depreciation = NDP
- Capital depreciation is very hard to determine




Employment
● Source of income
● Source of taxes




Notes
- Working is a way to earn income but often involves negative utility
- Created by subsidies

Balance of payments / balance of trade
● Exports are a source of foreign currencies
● Export balance = exports - imports (often seen as a sign of competitiveness)
Notes
- Income earned with exports is important not the exports as such
- The Netherlands is a large exported but a large share of it concerns re-exports

,Emissions of pollutants
● Greenhouse effects: CO2 (Carbon dioxide), N20 (Nitrous oxide), CH4 (methane)
● Acidification: NOx, nitrogen, oxides, SO2 (Sulphur dioxide), NH3 (Ammonia)
● Eutrophication: N nitrogen & P phosphorus
● Fine dust


Week 2
Firm = organisation that transforms inputs into outputs
Output = grown or manufactured commodities and services
Inputs = factors of production - resources used in production like labour, capital goods,
energy and materials.

Variable inputs = quantity can be adjusted in short run e.g. raw materials
Quasi-fixed inputs = quantity fixed in short run but can be adjusted in long run e.g. family
labour and capital goods or land.

Characteristics of agricultural production
1. Main market form (farm-level) is perfect competition.
a. Individual producers are price takers in input and output markets
2. Farms are too small to do research. Supplied by others (agencies/companies)
3. Time-lag between decision to produce and realised production. Varies by sector.
4. Seasonality of production -> fluctuating output prices and limited operation.
5. Uncertainty
a. Weather risks
b. Diseases and pests
c. Policy
6. Joint production (milk and meat, crop rotation)

Production function
● Production set = all technologically
possible combinations of inputs and
outputs
● Production function = the boundary of the
production set, describing the relation
between inputs x and output y


In case of multiple outputs:


● Distinguish variable and quasi-fixed inputs
● Only scarce inputs & physical outputs considered

,Characteristics production function
● Neoclassical assumptions
○ Continuous / smooth

○ Increasing in inputs

○ Concave in inputs

● Marginal product change in output for a 1 increase in input


● Production elasticity

Economies of scale


● parameter :
○ Increasing returns to scale u > 1
○ Constant returns to scale u = 1
○ Decreasing returns to scale u < 1

Production function
- 2 inputs (capital, labour)
- Concave to the origin
Isoquant
- Convex to the origin
- Slope represents ease of substitution

Marginal Rate of Technical Substitution MRTS




Substitution elasticity
● Measure of the convexity of the isoquant
● By how many percent does the ratio of inputs increase if I increase the MRTS by 1%



, Profit maximisation
● Profits = total revenues of output - total costs of inputs


● Single input case optimum




● Value of Marginal Product = Marginal costs
○ VMP = MC

Multiple inputs and outputs
● Variable inputs X1, X2 etc
● Quasi-fixed inputs Z1, Z2 etc
● Short run optimisation of profits subject to technology constraint (transformation
function) given level of quasi-fixed inputs




○ Subject to:
● Optimise over Yj and Xi
○ For given Yj minimise costs (set optimal Xi)
○ Choose the profit maximising level of output

Cost minimisation: 2 inputs

● Costs


● Iso-cost line



● Slope Isoquant



● Minimum costs where iso-cost line is tangent to isoquant

Graphical solution:

Slope of isoquant = Marginal Rate of
Substitution

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