Why is the maximum profit not at the same level as maximum production?

1. We discussed some uses of economics in making production decisions on farms. Use marginal product, marginal cost and marginal revenue concepts as needed to answer the following questions.

What is the rule for maximum production?

What is the input rule for maximum profit?

What is the output rule for maximum profit?

Why is the maximum profit not at the same level as maximum production?

 

2. Suppose a Michigan dairy farmer has hired you as a consultant to help with his production decisions. The farmer is deciding what amount of concentrate to feed in his dairy cattle ration. The concentrate costs $0.13 per pound (and must be purchased in five pound increments—see the table). The farmer receives $0.17 per pound of milk.

Please fill in the missing cells of the table by hand and turn it in with your answers.

How much feed does the farmer use (purchase) to maximize milk production?

How much does he purchase to maximize profit?

 

3. Another scenario: The concentrate costs $0.18 per pound (and must be purchased in five pound increments—see the table). The farmer receives $0.15 per pound of milk. Use spreadsheet provided, print off and turn in a copy of the spreadsheet.

a. How much feed does the farmer use (purchase) to maximize milk production?

How much does he purchase to maximize profit?

 

 

Assume that the cow eats all the feed you give her (that is if you put 100 pounds in front of her, she will eat it so you need not worry about feed level exceeding capacity). Also recall that milk output is the same as total product in this case.

Some of the cells have been filled in to guide you.

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