College of Agricultural Science

Department of Agricultural Economics

Assignment of Farm management (ABVM 3171)
Submission date June 15, 2021
Should be submitted via email (gedishakatola@gmail.com)

Part one discussions and elaboration

1. Explain the scope and importance of farm management?

2. Discuss the following economic principles that help in rational farm management?
a. Law of variable proportions or Law of diminishing returns
b. Cost Principle
c. Principle of factor substitution
d. Principle of product substitution
e. Principle of equi-marginal returns
f. Time comparison principle
g. Principle of comparative advantage
3. Identify the difference and similarities between
a. Farm management, agricultural economics and economics?
b. Agricultural production economics and farm management.
4. Explain briefly assumptions of Production Function Analysis?
5. Explain types of production functions used in agriculture?
6. Explain the relationship between law of diminishing returns and the three stages of
production?
7. What roles do you expect from farm manager?
8. How farmer make decision?
9. Discus the difference between risk and uncertainty?
10. Discus types of risks in farm management?
11. When farmers will face marketing /price risk?
12. What are risk management strategies in farm management?
 Part two workout

1. Consider the following facts:

Purchased a farm machine on March 1, 2019, for birr 5,640.
Useful life is estimated at six years.
Estimated disposal value at the end of the six years is birr 1,200.
Required:
a. What is the depreciation expense for the second year (2020) using straight-
line depreciation?
b. What is the balance of the accumulated depreciation account on January 1,
2023, and using straight-line depreciation?
c. What is the balance of the accumulated depreciation account on January 1,
2022 using double-declining balance depreciation?
d. Present a schedule for all six years assuming sum-of year’s digits
depreciation.
e. Which depreciation method reports the highest net income in 2019?
f. Assume that at the beginning of the fifth year (2023) the machine was
substantially modified, thus increasing its useful life by another two years
beyond its original estimated life. If the extraordinary repair cost was birr 900,
what will be the depreciation expense reported for 2023 assuming straight-
line depreciation was originally used (and is continued), and that disposal
value at the end of the extra two years is now assumed to be birr 1,500?
2. TC=100+50Q, where TC is total cost and Q is output. Find the equation of TFC,
TVC, AFC, AVC, AC and MC?
3. Given TC = 100 + 50Q - 12 Q, where TC is total cost and Q is output
a. What are the equations for total fixed cost, total variable cost, average
fixed cost, average variable cost and marginal cost?
 4. Based on the hypothetical Cost data showing in the relationship among the
various cost concepts, fill the table (show your brief calculation for each section)?

units Fixed Variable Total Average Average Average total Marginal

of cost cost cost Fixed cost Variable cost cost(ATC=AF cost (MC=
output (FC) (VC) (FC+VC) (AFC=TFC/ (AVC=TVC/ C+AVC) VC/Q)
(Q) Q) Q)

0 125 0
1 125 30
2 125 45
3 125 56
4 125 58
5 125 62
6 125 70
7 125 90
8 125 131
9 125 203
10 125 335

Part three scenario analysis

1. Senayt small-scale farmer in Arbaminch-lante runs a three hectare farm. She grows
maize, a mix of beans and sorghum, has two dairy cows and keeps some chickens
around her home. Her farm has sustained her and her family comfortably for a
number of years. While producing for home consumption, she has always produced
a surplus which she has sold for cash on the local market. Now that her children are
older, she feels the need for more cash. She knows that it should be possible to make
more money from her farm. She recently heard on the radio that there had been an
increase in the demand for vegetables and high prices could be obtained. The
announcer said that farmers who know how to produce tomatoes may be able to
make good profits. She wants to gain more out of her farm. Beans have not been
very successful and she is considering introducing tomatoes as an alternative. She
wonders whether this change will increase her income. To produce for the market
will cost her money, which she will have to pay out before she sells her produce.
These are some of the factors that she will have to take into account before making a
final decision. If this farmer asked you for advice about markets, demand, profits
and return on investment in tomato production, how and what would you be able to
answer her questions as a farm manager?