An Economic Analysis of Farm Organizations for Beef Cattle Production in the Southwest Louisiana Rice Area.

Transcription

1 Louisiana State University LSU Digital Commons LSU Historical Dissertations and Theses Graduate School 1973 An Economic Analysis of Farm Organizations for Beef Cattle Production in the Southwest Louisiana Rice Area. Derli Chaves machado da Silva Louisiana State University and Agricultural & Mechanical College Follow this and additional works at: Recommended Citation Silva, Derli Chaves machado da, "An Economic Analysis of Farm Organizations for Beef Cattle Production in the Southwest Louisiana Rice Area." (1973). LSU Historical Dissertations and Theses This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Historical Dissertations and Theses by an authorized administrator of LSU Digital Commons. For more information, please contact

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3 I I 74-18,367 SILVA, Derli Chaves Machado da, AN ECONOMIC ANALYSIS OF FARM ORGANIZATIONS FOR BEEF CATTLE PRODUCTION IN THE SOUTHWEST LOUISIANA RICE AREA. The Louisiana State University and Agricultural and Mechanical College, Ph.D., 1973 Economics, agricultural University Microfilms, A XEROX Company, Ann Arbor, Michigan THIS DISSERTATION HAS BEEN MICROFILMED EXACTLY AS RECEIVED.

4 AN ECONOMIC ANALYSIS OF FARM ORGANIZATIONS FOR BEEF CATTLE PRODUCTION IN THE SOUTHWEST LOUISIANA RICE AREA A D is s e rta tio n Subm itted to the Graduate F aculty of the L ouisiana S ta te U n iv ersity and A g ric u ltu ra l and M echanical C ollege in p a r t i a l fu lfillm e n t o f the requirem ents fo r the degree o f Doctor of Philosophy in The Department of A g ric u ltu ra l Economics and A gribusiness by D e rli Chaves Machado da S ilv a V e te rin a ria n, Federal U n iv ersity of Rio Grande do S ul, 1964 M.Sc., Inter-A m erican I n s t i t u t e o f A g ric u ltu ra l S ciences, 1969 December, 1973

5 ACKNOWLEDGMENTS The au th o r expresses h is g ra te fu l a p p re c ia tio n to h is m ajor p ro fe s s o r, Dr. Donald C. Huffman, fo r h is guidance and v alu ab le a s s is ta n c e throughout the graduate program. To the members of the Graduate Committee, Drs. J e rry M. Law, A lvin R. Schupp, Loren C. S c o tt, Fred H. Wiegmann, and W illard F. Woolf, the a u th o r acknowledges th e ir advice in the p re p a ra tio n o f th is m anuscript. The au th o r wishes to thank the Department o f A g ric u ltu ra l Economics and A g rib u sin ess, and the L ouisiana A g ric u ltu ra l Experiment S ta tio n fo r th e ir fin a n c ia l a s s is ta n c e during th is graduate program. A ppreciatio n is due to Drs. C. V. P la th and A rthur R. Gerlow, and Mr. A rthur M. H eagler, D. S. Department o f A g ric u ltu re fo r t h e ir encouragement and in c e n tiv e throughout the perio d o f th is study. The a s s is ta n c e o f J. Donald Cascio in o b ta in in g b asic data is a lso a p p re c ia te d. Sincere thanks are extended to Mrs. Carolyn M. Lusk fo r typing a s s is ta n c e o f numerous d r a fts as w ell as the f i n a l copy o f th is study. F in a lly, deep g ra titu d e is due the a u th o r's w ife and c h ild re n, M arlene, Tania, and Eduardo, fo r th e ir p a tie n c e, understanding, and encouragement throughout the p erio d o f th is study. i i

6 TABLE OF CONTENTS PAGE ACKNOWLEDGMENTS... i i LIST OF TABLES... v i i i LIST OF APPENDIX TABLES... x LIST OF FIGURES... x i ABSTRACT... x i i CHAPTER I. INTRODUCTION... 1 The P r o b l e m... 1 O bjectiv es... 4 C h a ra c te ris tic s of th e Area o f Study... 5 Previous Research in the Southwest L ouisiana Rice Area... 7 Previous Research in Other Areas... 9 The Farm Firm in P ersp ectiv e I I. METHODOLOGY AND PROCEDURES The S-67 Regional Research P ro je c t The Survey and Sampling Procedures T h e o re tic a l C o n siderations L inear Programming G eneral Assumptions Labor Assumptions Land A s s u m p t io n s E n te rp rise A lte rn a tiv e s Crops Beef C a ttle Management Systems... 32

7 CHAPTER PAGE E n te rp rise R e s tric tio n s S p e c ific Procedures O bjective 1 36 O bjective 2 38 O bjective 3 41 I I I. ANALYSIS OF FARM ORGANIZATIONS THAT MINIMIZED INVESTMENT CAPITAL TO ACHIEVE $7,000 ANNUAL INCOME Optimum Farm O rganizations Considering A ll F easib le E n te rp rise s O rganization a t the Zero E quity Level, C onsidering A ll F e a sib le E n te rp rise s O rganizations fo r S elected E quity L evels, C onsidering A ll F e a sib le E n te rp rise s Optimum Farm O rganizations w ith Grain Sales R e stric te d O rganization a t th e Zero E quity Level, w ith G rain Sales R e s tric te d O rganizations fo r S elected Equity L evels, w ith Grain Sales R e s tric te d Comparison o f Optimum Farm O rganizations C onsidering A ll F e a sib le E n te rp rise s and w ith G rain S ales R e stric te d IV. ANALYSIS OF THE OPTIMUM ORGANIZATION FOR MAXIMIZING NET RETURNS FOR SELECTED FARM SITUATIONS Assumptions o f the Maximizing S o lu tio n s Maximizing Returns Considering A ll F easib le E n te rp rise s Small Farms, P a rt-tim e O perator C onsidering A ll F e a sib le E n te rp rise s Small Farms, F u ll-tim e O perator C onsidering A ll F e a sib le E n te rp rise s The 600 Acre Large Farms Considering A ll F e asib le E n te rp rise s The 1,800 Acre Large Farms Considering A ll F e a sib le E n te rp rise s i v

8 CHAPTER PAGE Maximizing Returns w ith G rain Sales R e stric te d Small Farms, P art-tim e O perator w ith G rain Sales R e s tric te d Small Farms, F u ll-tim e O perator w ith G rain Sales R e s tric te d The 600 Acre Large Farm w ith Grain S ales R e s t r i c t e d The 1,800 Acre Large Farm w ith Grain S ales R e stric te d Comparison o f Farm O rganizations th a t Maximized N et Returns and Minimized Investm ent C a p ita l E ffec ts o f O perators Labor A v a ila b ility on Farm O r g a n i z a t i o n s E ffec ts of O perator A v a ila b ility C onsidering A ll F e asib le E n te rp rise s E ffe c ts o f O perator A v a ila b ility w ith G rain Sales R e s tric te d E ffec ts o f E n te rp rise R e s tric tio n s on Farm O r g a n i z a t i o n s E ffec ts o f S iz e on the Farm O r g a n i z a t i o n s E ffe c ts o f Beef C a ttle P ric e Level on Farm O r g a n i z a t i o n s Comparison o f Farm O rganizations a t S elected Beef C a ttle P ric e Levels for th e 157 Acre Farm S i z e ' Comparison o f Farm O rg an izatio n s a t S elected Beef C a ttle P ric e Levels for th e 600 Acre Farm S i z e Comparison o f the E ffe c ts o f Beef C a ttle P rice Levels on Small and Large Farms R elativ e P r o f i t a b i l i t y o f Farm O rganizations fo r S elected Beef C a ttle Management Systems Comparison o f the 157 A cre Farm O rganizations fo r S ele cted Beef C a ttle Management Systems v

9 CHAPTER PAGE Comparison o f the 600 Acre Farm O rganizations fo r S elected Beef C a ttle Management Systems D ifferences in th e 157 and the 600 Acre Farms w ith S elected Beef C a ttle Management Systems E ffec ts o f Changes in I n te r e s t R ates, Labor Wage R ates, and Government Programs High Level o f I n te r e s t R a t e s High Level of Labor Wage R a t e s Absence o f Government Programs fo r Rice Comparison o f Farm O rganizations w ith S p ecified Changes in S elected V ariab les V. ANALYSIS OF THE PRESENT FARM ORGANIZATION AND ADJUSTMENTS NEEDED FOR MAXIMIZING NET RETURNS The P resen t S i t u a t i o n Comparison o f P resen t and Optimum O rganizations Adjustm ents Needed by P resen t Farms to Achieve Optimum O rganization E ffe c ts o f Wage Rates on A djustm ents to Optimum O rg an izatio n E ffe c ts o f I n te r e s t R ates on Adjustm ents to Optimum O rgan izatio n E ffe c ts o f Government Programs on Adjustm ents to Optimum O rganization VI. SUMMARY AND CONCLUSIONS S u m m a ry Method o f Study D eterm ination o f Minimum Size and Optimal O rganization Optimal O rg an izatio n s fo r S elected Farm S itu a tio n s Maximizing R eturns fo r S elected Farm S izes E ffe c ts o f Beef C a ttle P rices v i

10 CHAPTER PAGE R elativ e P r o f ita b ili ty o f S elected Beef C attle Management Systems E ffe c ts o f I n te r e s t R ates, Wage R ates, Government Programs Comparison o f Present and Optimum O rganizations Conclusions H I SELECTED BIBLIOGRAPHY APPENDIX... H 9 VITA v i i

11 LIST OF TABLES TABLE PAGE 1 Estim ated s e le c te d beef c a t t l e p ric e le v e ls, Southern Region, Summary of reso u rce use and e n te rp ris e o rg a n iz a tio n req u ired to obtain y e a rly n et re tu rn s of $7,000, co n sid erin g a l l fe a s ib le e n te rp ris e s, a t s e le c te d eq u ity le v e ls, sm all farms, Southwest L ouisiana Rice A r e a Summary of reso u rce use and e n te rp ris e o rg a n iz a tio n req u ire d to o b ta in y early n et re tu rn s of $7,000 w ith g ra in sa le s r e s tr ic te d, fo r s e le c te d eq u ity le v e ls, sm all farm s, Southwest L ouisiana Rice Area Summary of farm o rg an iz atio n s th a t maximized n e t re tu rn s to o p e ra to r's labor and management, fo r s e le c te d farm s iz e s and o p e ra to r's lab o r a v a i l a b i l i t y, w ith a l l fe a s ib le e n te rp ris e s, Southwest L ouisiana Rice A r e a Summary of farm o rg an iz atio n s th a t maximized n et re tu rn s to o p e ra to r s labor and management, fo r s e le c te d farm s iz e s and o p e ra to r's lab o r a v a i l a b i l i t y, w ith g rain s a le s r e s tr ic te d, Southwest L ouisiana Rice A r e a Summary of reso u rce use and e n te rp ris e o rg a n iz a tio n th a t maximized annual net re tu rn s to o p e ra to r's lab o r and management, co n sid erin g a l l fe a s ib le e n te rp ris e s a t s e le c te d beef c a t t l e p ric e s, 157 acre farm s, Southwest L ouisiana Rice Area v i i i

12 Summary of reso u rce use and e n te rp ris e o rg a n iz a tio n th a t maximized annual n et re tu rn s to o p e ra to r's la b o r and management, co n sid erin g a l l fe a s ib le e n te r p r is e s, a t s e le c te d beef c a t t l e p ric e s, 600 ac re farm s, Southwest Louisiana Rice Area... Summary of farm o rg an iz atio n s th a t maximized n et re tu rn s to o p e ra to r's la b o r and management in c lu d in g s p e c ifie d beef c a t t l e management system s, 157 acre farm s, Southwest L ouisiana Rice Area... Summary of farm o rg an iz atio n s th a t maximized n et re tu rn s to o p e ra to r's lab o r and management in cluding s p e c ifie d beef c a t t l e management system s, 600 a c re farm s, Southwest L ouisiana Rice Area...*.. Summary of reso u rce use and e n te rp ris e o rg a n iz a tio n th a t maximized annual net re tu rn s to o p e ra to r's lab o r and management, a t se le c te d le v e ls of in te r e s t r a t e s, labor wage r a te s, and government programs, c o n sid erin g a l l fe a s ib le e n te rp ris e s, 600 acre farm s, Southwest L ouisiana Rice Area... Summary of reso u rce use and annual net re tu rn s to o p e ra to r's la b o r and management fo r se le c te d e n te rp ris e com binations and farm s iz e s, Southwest L ouisiana Rice Area...

13 LIST OF APPENDIX TABLES TABLES PAGE 1 Labor a v a i l a b i l i t y of p a rt-tim e and fu ll-tim e farm o p e ra to rs, and fu ll-tim e workers Southwest L ouisiana Rice Area Base p ric e s, y ie ld s, and annual labor requirem ents per a c re fo r s e le c te d grain cro p s, Southwest L ouisiana Rice Area Y ields and annual la b o r requirem ents per acre fo r s e le c te d forage crops, Southwest L ouisiana Rice Area T o tal annual labor requirem ents fo r se le c te d beef c a t t l e management system s, sm all and la rg e farm s, Southwest L ouisiana Rice Area x

14 LIST OF FIGURES FIGURE PAGE 1 Location o f the Southwest L ouisiana Rice A r e a... 6 x i

15 ABSTRACT L in ear programming was used to determ ine optimum le v e ls o f beef c a t t l e production fo r se le c te d s itu a tio n s in the Southwest L ouisiana Rice A rea. Emphasis was on com petitiveness o f b eef c a t t l e e n te rp ris e s fo r reso u rce use w ith in the farm firm and w ith in the to t a l economy. The m ajor crop and seven liv e s to c k a c t i v i t i e s were included in the a n a ly sis in accordance w ith assum ptions o f Regional Research P ro je c t S-67. Four beef c a t t l e systems were included in which a l l c alv es were produced on the farm; cow -calf to weaning, w in te rg ra zin g, w in terg razin g w ith supplem ental g ra in feeding and fe e d lo t. Three a d d itio n a l systems were included th a t p erm itted o p tio n a l purchase of calv es; w in te rg ra z in g, w in te rg ra zin g w ith supplem ental g ra in feeding and fe e d lo t. Farm o rg an iz atio n s were determ ined th a t minimized investm ent c a p ita l to achieve $7,000 annual n e t income to o p e ra to r's la b o r, management, and e q u ity c a p i ta l. co m p etitiv e w ith o ff farm employment. Five e q u ity le v e ls were consid ered when a l l f e a s ib le This le v e l o f income was assumed to be e n te rp ris e s were included and when p a rt o f th e land use was r e s t r i c t e d to b eef c a t t l e p roduction. Farm o rg an iz atio n s th a t maximized n e t re tu rn s to o p e ra to r's labor and management were determ ined a t th e zero eq u ity le v e l fo r th re e farm s iz e s w ith a fu ll-tim e o p e ra to r. Small farm s itu a tio n s included p a r t- time o p e ra to rs a lso. S itu a tio n s fo r a l l fe a s ib le e n te rp ris e s and p a r t x l i

16 of land use r e s t r i c t e d to beef c a t t l e production were included. The a n a ly sis also in clu d ed four beef c a t t l e p ric e le v e ls for two farm s iz e s. Two le v e ls o f in te r e s t r a te s, wage r a t e s, and government p ro grams were ev alu ated fo r one farm s iz e. R elativ e p r o f i t a b i l i t y of farm o rg an iz atio n s in c lu d in g each of seven b eef c a t t l e management system s was determ ined. The findings suggest th a t farm firm s in th e Southwest L ouisiana Rice Area and beef c a t t l e a c t i v i t i e s w ithin th e firm s can compete fo r reso u rce use w ith o th e r economic a c t i v i t i e s. In g en era l, optimum farm o rg an iz a tio n s included one or more beef c a t t l e management system s. When p a r t of land use was r e s t r i c t e d to r a is in g beef c a t t l e, more than one beef system was included in the farm o rg an iz atio n. A more in te n s iv e liv e sto c k program re s u lte d when the o b je c tiv e was to maximize re tu rn s ra th e r than minimize investm ent c a p i ta l. P art-tim e farm ers received lower retu rn s p e r hour employed on the farm than fu ll-tim e farm ers. The lim ited use o f o p e ra to r's tim e in fu ll- tim e sm all farm o rg an izatio n s suggests th a t these o p e ra to rs could have some types o f nonfarm employment. There was l i t t l e d iffe re n c e in annual la b o r requirem ents w hether a l l fe a s ib le e n te rp ris e s were inclu d ed or land use was lim ited to beef c a t t l e production, b u t the l a t t e r s itu a tio n reduced net re tu rn s cons id e ra b ly. In crease in b e e f c a t t l e p ric e s had r e la tiv e ly l i t t l e in flu e n c e on the number of w in terg razed anim als m aintained on sm all farms, b u t the x iii

17 a c t i v i t y was in te n s ifie d by feeding supplem ental g ra in. However, a t higher p ric e s fo r beef, la rg e farm s itu a tio n s increased the number o f w in terg razed animals by 40 p erc e n t. The most p ro fita b le b e e f c a t t l e management system was w in te r- g razin g w ith most o f the c a lv e s purchased, followed by w in terg razin g w ith supplem ental grain feed in g. When purchase of a d d itio n a l calves was n o t p erm itted, liv e s to c k e n te rp ris e s co n siste d o f a supplem ental herd. H igher in t e r e s t ra te s decreased the number of liv e s to c k included in the optimum farm o rg a n iz a tio n. Higher wage ra te s and e lim in atio n o f government programs fo r r ic e did n o t a f f e c t the number o f beef c a t t l e b u t co nsiderably reduced income p o te n tia l of farms. Comparison o f p resen t o rg a n iz a tio n o f farms in the a re a w ith the optimum o rg a n iz a tio n in d ic a te d th a t th e ty p ic a l farm er could subs t a n t i a l l y in crease n e t re tu rn s by in te n s ify in g the liv e s to c k program w ith w in te rg ra zin g o f purchased calves on ry eg rass double cropped on the r ic e and soybean acreage and by in c re a sin g the p lanted acreage o f soybeans. T o tal investm ent c a p ita l requirem ents would in c re a se by 20 p e rc e n t.

18 CHAPTER I INTRODUCTION The Problem The Southwest L ouisiana Rice Area*" is one of the im portant beef c a t t l e producing regions o f the S ta te o f L ouisiana. According to the 1969 Census o f A g ric u ltu re, the area contained 13 p e rc e n t o f L o u isia n a 's c a t t l e and calv es and the s a le s o f th ese anim als g en erated approxim ately 2 e ig h t m illio n d o lla rs o f a g r ic u ltu r a l income. More re c e n tly, F ie ld e r estim ated th a t cash re c e ip ts from liv e s to c k and liv e s to c k products fo r 3 the area in 1972 were 17.6 m illio n d o lla r s. This was 5.8 percent o f to t a l liv e s to c k and liv e s to c k products sa le s in the S ta te and was approxim ately 12 p erce n t o f cash re c e ip ts fo r a l l farm production in the a re a. ^Acadia, A lle n, C alcasieu, Cameron, J e ffe rs o n D avis, and Verm ilion p a rish e s. 2 United S ta te s Bureau o f th e Census, U. S. Census o f A g ricu l tu r e, 1969, Volume I, P a rt 35, L ouisiana, (W ashington, D. C.: U. S. Government P rin tin g O ffic e, 1972). ^ F ie ld e r, L. L., E stim ates o f L ivestock Numbers and Farm Income by P a rish e s, L o u isian a, , (Baton Rouge: L ouisiana A g ric u ltu ra l Experiment S ta tio n, AEA Inform ation S eries No. 30, June 1973). 1

19 2 T ra d itio n a lly farm o rg an iz a tio n s in the Southwest L ouisiana Rice Area have included beef c a t t l e e n te rp ris e s as one o f the farm e n te r- 4 p r is e a lte r n a tiv e s. According to a re c e n t survey, 52.4 p erce n t o f the farms in the a re a had 10 o r more head of brood cows. The brood cow herd w ith calv es sold a t weaning was th e predominant b eef c a t t l e management system in the a re a as determ ined by the survey. The b e e f c a t t l e are u su a lly a supplem entary e n te rp ris e to crops. However, given th e reso u rce base o f farms in the a re a, th e re is reason to b e lie v e th a t o th e r more in te n s iv e b eef c a t t l e e n te rp ris e s may become more im portant. The e x te n t and n a tu re o f b eef c a t t l e production has been changing in re c e n t y ears and i t appears th a t changes w ill continue in the fu tu re. Continued m o d ific a tio n in n a tio n a l a g r ic u ltu r a l p o lic y and in c re a se s in the p ric e s of a g r ic u ltu r a l in p u ts have forced farm ers to a d ju st production through adoption o f new technology, in creased mecha n iz a tio n and b e t t e r planning fo r the use o f re so u rc e s. The in te n s i f i c a t i o n o f the liv e s to c k e n te rp ris e r e f le c ts the jo i n t impact o f improvement in anim al as w e ll as in forage management. W ithin th is c o n te x t, annual c a l f crop percentage has improved and permanent p a stu re acreage p e r brood cow has decreased. These changes have re s u lte d from an in creased demand fo r c a t t l e and c alv es to use the B u tle r, C. P., Economic and O p eratio n al C h a ra c te ris tic s o f th e Southern Beef C a ttle In d u s try, (Clemson: South C arolina A gric u ltu r a l Experiment S ta tio n, Southern C ooperative S e rie s B u lle tin No. 176, October 1972),

20 3 lim ited p astu relan d. They a ls o r e f le c t the com petitive and complementary re la tio n s h ip s between g ra in crops and liv e s to c k fo r o th e r land. The n atu re of forage improvement excludes rap id in creases in prod uction e ffic ie n c y fo r many liv e s to c k a c t i v i t i e s. This lim its the adjustm ent a lte r n a tiv e s open to any farm er w ith beef c a t t l e or co n sid erin g th e a d d itio n of a liv e s to c k a c t i v i t y to the c u rre n t e n te rp ris e mix. This study was designed to determ ine and ev alu ate o rg an iz atio n p o s s i b ili ti e s on farms in the Southwest L ouisiana Rice A rea. I t d eals w ith the com petitive p o sitio n of beef c a t t l e e n te rp ris e s w ith in the farm firm as i t competes fo r reso u rces w ith o th e r s e c to rs of the economy. The a n a ly sis assumed a purely com petitive m arket fo r re so u rc e s, such as lab o r and c a p ita l, as w ell as a purely com petitive market fo r farm p ro d u c ts. This study o u tlin e s optimum o rg an iz atio n s which correspond to d if f e r e n t p ric e le v e ls fo r r i c e, beef c a t t l e, i n t e r e s t r a te s, and labor wage r a te s. A r e l a t i v e change in p ric e of products or fa c to rs may a l t e r th e com petitive r e la tio n s h ip of e n te rp ris e s on a given farm. A change in the r e la tiv e p rice le v e l fo r beef may r e s u lt from a change in consumer demand. The a g r ic u ltu r a l se c to r of the economy is su b je c t to a number of government c o n tro ls which are m anifested through acreage lim ita tio n s, p ric e su p p o rts, s u b sid ie s, s p e c ia l loans, e tc. R ice, one of the m ajor e n te rp ris e s in th is study, is su b je c t to government re g u la tio n. This was re fle c te d w ith in the a n a ly sis by a l te r n a tiv e le v e ls fo r the p ric e of r i c e.

21 O bjectives The g en eral o b je c tiv e of th is stu d y was to determ ine optimum farm o rg a n iz a tio n s w ith emphasis on s iz e and type of beef c a t t l e e n te rp ris e fo r s e le c te d reso u rce s itu a tio n s in the Southwest L ouisiana Rice A rea. The s p e c ific o b je c tiv e s of th is study were: 1. Determine s iz e and optim al o rg an iz atio n of a farm which w ill provide a sp e c ifie d le v e l of income w hile in com petition fo r a l l resources w ith in the t o t a l economy when: a. A ll f e a s ib le e n te rp ris e s are considered, and b. A p o rtio n of the land reso u rce is lim ite d to beef c a t t l e e n te r p r is e s. 2. Determine fo r s e le c te d farm s iz e s : a. D ifferences in optim al o rg a n iz a tio n fo r maximizing re tu rn s to operator*s labor and management, b. E ffe c ts of se le c te d beef c a t t l e p ric e le v e ls on farm o rg an izatio n and income, and c. R elativ e p r o f i t a b i l i t y of optim al farm o rg an iz atio n s in clu d in g

22 5 s e le c te d beef c a t t l e management sy stem s. 3. Determine fo r a s e le c te d farm s iz e : a. E ffe c ts of s e le c te d changes in i n t e r e s t r a te s, lab o r wage r a te s, and government programs on optim al farm o rg a n iz a tio n and annual income le v e l, b. A djustm ents needed by present farms to o b ta in optim al o rg an iz a tio n, and c. A djustm ents needed by present farms fo r s e le c te d changes in in te r e s t r a t e s, la b o r wage r a te s, and government programs. C h a r a c te r is tic s of the Area of Study^ The geographic a rea considered in th is study is th a t reg io n of Louisiana c la s s if ie d as the Southwest Rice Area, one of the leading beef c a t t l e producing a re a s of the S ta te. This farm ing area comprises th e p arish es in d icate d in F ig u re 1. The topography of th e area is r e la tiv e ly f l a t, w ith poor su rface and in te rn a l drain ag e. There is a v a rie ty of s o i l types in the area ^This se c tio n is based on th e d e s c rip tio n p resented in Gerlow, A rth u r R. and Joe R. Campbell, E n te rp rise C osts and Returns fo r Beef C a t tle. Southw estern L ouisiana Rice A rea. (Baton Rouge: Louisiana A g ric u ltu ra l Experiment S ta tio n, DAE Research Report No. 337, May 1965).

23 6 ARKANSAS '///. Southwest Louisiana y//t Rice Area MISSISSIPPI TEXAS l»*v «GULF OF MEXICO Figure 1. L ocation of th e Southwest L ouisiana Rice Area.

24 7 and they range from lig h t loams to heavy c la y s. The soulliern p a rt of th e r ic e b e l t has p rim a rily heavy s o i l s, u su ally a d ja c e n t, or in close proxim ity, to the m arshes. a rea have lig h te r s o i l s. The c e n tr a l and n o rth ern se c tio n s of the The r ic e s o ils are c h a ra c te riz e d by impervious s u b so ils which enable them to h old w ater fo r long periods of tim e. The clim ate i s h o t and humid during the summer months and p erio d ic mosquito in f e s ta tio n s may cause co n sid era b le harm to c a t t l e g razing in the a re a. R a in fa ll ranges from 55 to 60 inches a n n u ally and th e growing season averages approxim ately 250 days. Previous Research in th e Southwest L ouisiana Rice Area The Southwest L ouisiana Rice Area has been th e focus of se v e ra l stu d ie s in p ast y e a rs, Woolf and Wiegnamm, in 1959, published a budgeta ry study of la b o r, equipment, and farm su p p lie s re q u ire d fo r th e major e n te rp ris e s in th e a re a. This re se a rc h contained d ata u s e fu l in planning r ic e and beef production in Southwest L o u isian a. Gerlow, M u llin s, and Campbell developed a s e r ie s of e n te rp ris e budgets co n tain in g in p u t-o u tp u t c o e f f ic ie n ts a p p lic a b le to crops in the study a re a.^ The stu d y, published in 1964, considered four s o i l groups, th re e siz e s of farm s, and two le v e ls o f technology. ^Woolf, W illard F. and Fred H. Wiegmann, Data fo r Planning Rice and Beef C a ttle P roduction Under S e le c te d R otation Systems in th e L ouisiana Rice A rea, (Baton Rouge: L ouisiana A g ric u ltu ra l Experiment S ta tio n, DAE Research Report No. 277, December 1960). ^Gerlow, A rth u r R., Troy M u llin s, and Joe R. Campbell, E n te rp rise C osts and Returns o f the Southwest L ouisiana Rice A rea. (Baton Rouge: L ouisiana A g ric u ltu ra l Experiment S ta tio n, DAE Research Report No. 335, June 1964).

25 8 Gerlow and Campbell, published in 1965 a study of e n te rp ris e c o sts Q and re tu rn s fo r beef c a t t l e in the Southwest L ouisiana Rice A rea. They analyzed the e f f e c t of herd s iz e, p astu re programs, weaning w eights, market p ric e s, and calv in g percentages on the income le v e l of the beef c a t t l e e n te rp ris e. F o ste r and Huffman developed production c o sts and y ie ld s fo r Q se le c te d forages in Southwest L o u isian a. These d a ta, published in 1968, were developed to be used as in p u t inform ation in a lin e a r programming study to determ ine optimum le v e ls of beef c a t t l e production and optimum forage programs fo r d if f e r e n t beef c a t t l e management systems in the a re a. Huffman rep o rte d in 1969 th a t the same beef c a t t l e management system was th e most p ro f ita b le fo r th re e a re a s in the S ta te : (a) th e Southwest L ouisiana Rice A rea, (b) th e C e n tra l and N orthern A llu v ia l A reas, and (c) th e C e n tra l and N orthern C oastal P la in s and H ill Areas.This system c o n siste d of m a in tain in g the brood cow herd w ith calves born in Gerlow, A rthur R, and Joe R. Campbell, E n te rp rise C osts and Returns fo r Beef C a t t l e. Southwest L ouisiana Rice A rea. (Baton Rouge: L ouisiana A g ric u ltu ra l Experiment S ta tio n, DAE Research Report No. 337, May 1965). 9 F o ste r, Thomas H. and Donald C. Huffman, P roduction Costs and Y ields by Month fo r S ele cted Forages in Southwest L o u isia n a. (Baton Rouge: L ouisiana A g ric u ltu ra l Experiment S ta tio n, DAE Research Report No, 378, June 1968). 10 Huffman, Donald C., How Much Can Beef C a ttle A fford to Pay fo r Forage?" The L ouisiana C attlem an. Vol. LXVIII, No. 16, October 1969.

26 9 e a rly sp rin g and re ta in in g w eanling calves fo r both w in te r and summer g razing to be so ld a t about 19 months of age, as g r a s s - f a t c a t t l e w eighing about 930 pounds. The e f f e c t on re tu rn s of changes in production p ra c tic e s and e n te rp ris e com binations in the area was presented in a 1971 p u b lic a tio n by Woolf and Gerlow.The r e s u lts showed th a t s e le c te d resource and e n te rp ris e adjustm ents were capable of in c re a sin g incomes on in d iv id u a l farm s. Such adjustm ents were to include soybeans in the e n te rp ris e mix in ste ad of r ic e and beef c a t t l e only, improving th e le v e l of management and production p ra c tic e s, and h ir in g seaso n al in ste ad of re g u la r la b o r. F in a lly, the same au th o rs examined the economic e f f e c ts of se le c te d changes in beef c a t t l e production p ra c tic e s in the a re a. 12 For the le v e ls o f technology and p rice s assumed in the stu d y, beef c a t t l e could not econom ically compete w ith soybeans fo r land reso u rc e s. Previous Research in Other Areas The lin e a r programming technique has become an im portant to o l for re se a rc h e rs in farm o rg a n iz a tio n and management. Some re se a rc h e rs have ^ W o o lf, W illard F. and A rthur R. Gerlow, E ffe c ts on Returns of Changes in P roduction P ra c tic e s and E n te rp rise Com binations. Southwest L ouisiana Rice A rea. (Baton Rouge: L ouisiana A g ric u ltu ra l Experiment S ta tio n, DAE Research Report No. 432, November 1971). ^G erlo w, A rthur R. and W illard F. Woolf, Economic E ffe c ts of Changes in Production P ra c tic e s in Beef C a ttle Production in the Southwest L ouisiana Rice A rea. (Baton Rouge: L ouisiana A g ric u ltu ra l Experiment S ta tio n, DAE Research Report No. 433, November 1971).

27 10 used the technique to maximize net re tu rn s to owned reso u rc e s. Others have used i t to determ ine the minimum land requirem ents necessary to produce s p e c ifie d le v e ls of net income. The S-42 Regional P ro je c t e n t itl e d "An Economic A p p raisal of Farming Adjustment O p p o rtu n ities in the Southern Region to Meet Changing C onditions" yielded se v e ra l p u b lic a tio n s, some of which a re reviewed below. The o v e ra ll purposes of the S-42 P ro je c t were: " (1 ) to provide guides to farm ers choosing among a lte r n a tiv e production o p p o rtu n itie s, e s p e c ia lly as those o p p o rtu n itie s a re a ffe c te d by changes in p ric e and technology, and (2) to provide guides to farm ers and o th e r persons engaged in developing and ad m in iste rin g p u b lic a g r ic u ltu r a l programs. 1 The procedures of th is study included the use of lin e a r programming techniques to determ ine minimum acreage to achieve a s p e c ifie d income and to d e riv e the r e s u ltin g optimum com binations of re so u rc e s. Amick, A lliso n, and Elrod (1965) used lin e a r programming to d e te r mine optim al o rg an iz atio n s fo r g en eral crop and c ro p -liv e s to c k farms in the Piedmont of G e o r g ia.^ The findings in d icate d th a t la rg e q u a n titie s of investm ent c a p ita l were req u ired fo r the optimum o rg an iz atio n s and Resource Requirements fo r $5.000 O p e ra to r's Income in S ele cted C otton-producing Areas of the South. (Clemson: Southern C ooperative S e rie s B u lle tin No, 140, South C aro lin a A g ric u ltu ra l Experiment S ta tio n, September 1968). ^A m ick, R. J., J. R. A llis o n, and J. C. E lrod, Optimum O rganiz a tio n s fo r G eneral Crop and C rop-l ivestock Farms in the Piedmont o f G eorgia. (A thens: G eorgia A g ric u ltu ra l Experiment S ta tio n, B u lle tin N. S. No. 133, May 1965).

28 u o rg a n iz a tio n s th a t emphasized liv e s to c k production had la rg e r c a p ita l requirem ents than o th e r firm s. S u th erlan d, fo r farms in two tobacco producing regions of North C aro lin a, re p o rte d in 1968 optim al farm o rg a n iz a tio n s fo r 24 s itu a tio n s th a t employed th e minimum acreage of land req u ire d to produce a net farm Income of $5,000 per an n u m.^ D iffe re n t assum ptions reg ard in g y ie ld s, lab o r and land, e q u ity in land, p rice s and allo tm e n t le v e ls brought about d if f e r e n t farm o rg a n iz a tio n s. Although r e la te d to a d if f e r e n t farm ing a re a, the study used a methodology s im ila r in many ways to the method used in th is study. Eagan and K e lle r (1965) determ ined minimum s iz e and farm systems fo r the E astern Highland Rim of Tennessee th a t could provide th re e se le c te d le v e ls of annual income fo r the o p e ra to r. 1 fi As s iz e of farm was in creased, more fu ll- tim e la b o re rs were needed fo r the optimum farm o rg a n iz a tio n s. For th e $3,000 annual income, minimum land requirem ents were 120 a c re s fo r a one-man labor supply and 200 a cre s fo r a two-man lab o r supply. However, in the l a t t e r s itu a tio n o n e - f if th of the a v a i l a b le fu ll-tim e la b o r was unused. To achieve a $4,500 net income le v e l, ^S utherland, J. Gwyn, Minimum Land Requirements to Produce $5.000 Net Farm Income. E astern Piedmont and Upper C oastal P lain (Economic Areas S ix and E), N orth C a ro lin a. (R aleigh: N orth C arolina A g ric u ltu ra l Experiment S ta tio n and the U. S. Department o f A g ricu l tu r e, Economic Inform ation Report No. 8, A p ril 1968). ^ E ag an, G erald V. and L uther H. K e lle r, Minimum Land R equirements fo r S p e c ifie d Levels of Farm Income in th e E astern Highland Rim o f Tennessee. (K noxville: The U n iv e rsity of Tennessee A g ric u ltu ra l Experiment S ta tio n, B u lle tin No, 452, January 1969).

29 12 minimum land requirem ents were 410 acres fo r th e one-man lab o r s itu a tio n and 277 a cre s fo r th e two-man la b o r s itu a tio n. In t h i s l a t t e r case, very sm all q u a n titie s of fu ll- tim e lab o r were not used and only minor q u a n titie s of p a rt-tim e help were h ire d. When th e annual income goal was in creased to $6,000, the minimum land requirem ent was 484 a cre s w ith two la b o re rs and no f e a s ib le system could be developed fo r the one-man lab o r s itu a tio n. F in a lly, the au th o rs concluded th a t, to achieve th e assumed income g o als, farms in the a rea would become fewer in number and la rg e r than the average commercial farm in the E astern Highland Rim of Tennessee. The Farm Firm in P ersp ectiv e The farm firm as a u n it of the a g r ic u ltu r a l s e c to r in Louisiana has been facin g an in c re a sin g com petition fo r reso u rces from o th e r secto rs of th e economy. For example, as wage ra te s in in d u stry r i s e, labor fo r a g r ic u ltu r a l employment becomes r e l a t i v e l y more sca rc e and expensive. Farmers u t i l i z e e ith e r one or a com bination of techniques to cou n teract th e e f f e c t of a change in reso u rce p ric e or a v a i la b i lit y : (a) they in co rp o rate new technology in to t h e i r production pro cess, (b) they modify th e c u rre n t e n te rp ris e mix, and (c) they modify the firm s tru c tu re ( s iz e ). H is to r ic a lly, farm o p erato rs in the study area have adapted by u t i l i z i n g new technology th a t was le s s labor in te n siv e and more c a p ita l in te n siv e and through th e m o d ificatio n of firm s tr u c tu re by in creasin g s iz e. E f f ic ie n t and economic employment of resources must be achieved i f a farm firm is to r e ta in i t s com petitive p o sitio n within the economy.

30 13 Farm s iz e plays a m ajor ro le in the e f f i c i e n t employment o f "lumpy" reso u rces (m achinery, fo r exam ple). A v ia b le firm must provide ap p ro p ria te rem uneration to lab o r and c a p ita l to keep th e se reso u rces employed in th e farm s e c to r. In a d d itio n, i t must a ls o provide th e o p erato r w ith an adequate le v e l of income to support th e farm fam ily i f i t i s to r e ta in h is e n tre p re n e u ria l s e rv ic e s. The o p e ra to r o f a sm all farm may c o n sid e r the high o p p o rtu n ity c o st o f lab o r and take o ff-farm employment. Many such s itu a tio n s e x is t in the area re p re se n tin g a m ajor c h a r a c te r is tic o f the reso u rce base a t the farm le v e l. Hence, w ith a r e s tr ic te d la b o r supply, the o rg an iz atio n o f sm all p a rt-tim e o p eratio n s would be expected to d i f f e r from th a t o f fu ll-tim e o p e ra tio n s. D ifferen ces in the reso u rce mix on s im ila r s iz e farms may a ls o r e s u l t in d if f e r e n t e n te rp ris e com binations. Resource a llo c a tio n among e n te rp ris e s would a lso be expected to d i f f e r for s im ila r s iz e farms including d if f e r e n t beef c a t t l e management system s. Another a s p e c t to co n sid er i s the o p p o rtu n ity c o st o f th e owned c a p i ta l inv ested by the farm o p e ra to r. Whether the c a p ita l is borrowed o r owned, the farm en tre p ren eu r must pay i n t e r e s t ra te s which a re comp e t iti v e w ith in th e to t a l economy. Wage and i n t e r e s t ra te s a f f e c t the firm s c o st s tr u c tu re and, hence, the optim al com bination o f e n te rp ris e s and resource use. Economic theory r e la te d to d is tr ib u tio n and f a c to r p ric in g was discussed

31 by Ferguson and B ila s. The d e ta ils of th ese th e o re tic a l c o n sid e r a tio n s w ill not be presented h ere. Consumer demand fo r a g r ic u ltu r a l products a lso has co n sid erab le impact in in flu e n c in g changes in production p a tte rn s a t the farm le v e l. For example, as consumers achieve g re a te r purchasing power, they a ls o e x h ib it t h e i r preferen ces fo r s e le c te d c u ts of beef a p a rt from in c re a s ing o v e ra ll beef consum ption. This s itu a tio n may a f f e c t liv e beef p rice s by in c re asin g the demand fo r the f in a l product. As a r e s u lt, the beef c a t t l e e n te rp ris e may become more com petitive w ith o th e r a g r i c u ltu r a l e n te rp ris e s w ith in the firm. The com petitive p o s itio n of beef c a t t l e farms r e la tiv e to o th e r farms may a ls o change. With a l l the above changes, farm ers a re faced w ith adjustm ents in the o rg an iz atio n of th e farm business in terms of reso u rce a llo c a tio n and e n te rp ris e mix. Consumer demand th e o ry, in c lu d in g income and s u b s titu tio n e f f e c ts was 19 a ls o d iscu ssed by B ila s. L a s tly, government programs a f f e c t farm o rg a n iz a tio n and resource, a llo c a tio n in a g r ic u ltu r e. These programs have denied fre e e n try to p o te n tia l producers and lim ited the p lan ted acreag e. The 1968 world p rice fo r r ic e was a t a le v e l comparable to the in te r n a lly supported ^Ferguson, C. E., Microeconomic T heory. (Homewood, I l l i n o i s : Richard D. Irw in, I n c., 1969), pp B ila s, Richard A., Microeconomic Theory: A G raphical A nalysis (New York: McGraw-Hill, 1967), pp Ib id. pp

32 20 p ric e in th e United S ta te s. I t has been suggested th a t the govern- 21 ment fre e th e r ic e producing in d u stry of a l l c o n tro ls. In view of c u rre n t n a tio n a l a g r ic u ltu r a l p o licy tre n d s, i t is im portant to explore the adjustm ents which would occur in farms of the Southwest Louisiana Rice Area in case of removal of allo tm e n ts and p ric e supports fo r r i c e. T h e o re tic a l asp ects of various government programs in a g r ic u ltu r e were 22 presented in d e t a il by Heady and f u r th e r e la b o ra tio n w ill not be presented here. 20 G rant, W. R. and D, S. Moore, A lte rn a tiv e Government Rice Programs - An Economic E v a lu a tio n. (Washington, D. C.: U. S. Department of A g ric u ltu re, Economic Research S e rv ic e, A g ric u ltu ra l Economic Report No. 187, 1970). ^G odw in, M. and L. Jones, Eds. The Southern Rice In d u s try. (C ollege S ta tio n : Texas A&M U n iv e rsity P ress, 1970). 22 Heady, E arl 0., Economics of A g ric u ltu ra l Production and Resource Use. (Englewood C li f f s, New J e rs e y : P re n tic e -H a ll, I n c., 1952), pp

33 CHAPTER I I METHODOLOGY AND PROCEDURES The S-67 Regional Research P ro je c t 1 T h irteen southern s ta te s and two agencies e s ta b lis h e d and are c u rre n tly conducting a re g io n a l research p ro je c t e n t itl e d S-67: "E v alu atio n of Beef P roduction in the South." The g en eral o b je c tiv e of the Regional P ro je c t, which r e la te s to th is study, s ta te s ; "E valuate th e m icro and macroeconomic e f f e c ts o f s e le c tiv e a sp ects o f a l te r n a t iv e beef production systems (and a s so c ia te d feed prod u ctio n complements) in d e lin e a te d areas of the region w ith s p e c ific a tte n tio n given to the e f f e c t of se le c te d le v e ls o f prod u ctio n technology, beef p ric e s, and competing product p r ic e s."2 The S ta te of L ouisiana in clu d es a l l or p a rts o f fiv e o f the 37 subregions encompassed by the re g io n a l study. 1 Alabama, A rkansas, F lo rid a, G eorgia, Kentucky, L ouisiana, M is s is sip p i, North C aro lin a, Oklahoma, South C aro lin a, Tennessee, Texas, V irg in ia, Tennessee V alley A u th o rity, and the U nited S ta te s Department o f A g ric u ltu re. ^Southern Regional Research P ro je c t S-67: E valuation o f Beef Production in the South, P rocedural Guide fo r O bjective I I, February 1971, (mimeographed). 16

34 17 The Survey and Sampling Procedures The prim ary inform ation fo r th is study was obtained from farmer in terv iew s u sing q u e stio n n a ire s designed by the S-67 Regional Research Committee. The Committee a lso recommended the b asic sam pling procedures which were th e same fo r a l l p a r tic ip a tin g s ta t e s. The subregions corresponded approxim ately to th e economic areas e s ta b lis h e d by the U. S. A g ric u ltu ra l Census, adapted in terms o f beef c a t t l e prod u ctio n p a tte rn s. A farm was defined fo r the purpose o f th is study by the Regional Committee as "a p lace w ith 50 o r more acres of openland or $1,000 or 3 more of g ro ss farm re c e ip ts in 1968." A b e e f farm must have met e i th e r o f the above requirem ents and must have had 10 o r more head of b e e f c a t t l e in A nonbeef farm was a farm w ith le s s than 10 head o f b eef c a t t l e in Beef c a t t l e were d efin ed as "cows or y e a rlin g s, o th e r than those used p rim a rily to produce m ilk o r d a iry replacem ent sto c k." The survey co n siste d o f p erso n al in terv iew s w ith farm ers s e le c te d u sing a random area s e le c tio n technique. The sampling procedure was designed to perm it drawing area sample segments a t random w ith in each o f th e type o f farming areas (subregions) s p e c ifie d. A ll heads of households w ith in each o f the area segments in the sample were interv iew ed. F ifty -tw o b e e f farms and 45 nonbeef farms (a t o t a l o f 97 3 Southern Regional Research P ro je c t S-67, oj>. c i t.

35 4 schedules) were enumerated in the survey and formed the sample fo r the Southwest L ouisiana Rice Area used in th is study. T h e o re tic a l C onsiderations The fu n ctio n o f the farm firm i s to e f f ic ie n t ly combine productive reso u rces in to production p ro cesses. The production theory of the firm provides the g en eral body o f theory th a t is w idely accepted as an aid to d e c isio n making a t the farm le v e l. P roduction theory of th e firm in clu d in g the a llo c a tio n o f resources among e n te rp ris e s was d iscu ssed in d e t a i l w ith a g r ic u ltu r a l a p p lic a tio n s by Heady in the te x t Economics 5 o f A g ric u ltu ra l Production and Resource Use. More p re c ise treatm en ts 6 7 of th e th e o re tic a l models were provided by Leftw ich and Ferguson. A ty p ic a l farm er in Southwest L ouisiana norm ally owns p a rt o f the prod u ctiv e reso u rces and a ls o can purchase more in p u ts in th e m arketp la c e. The firm may own a t r a c t o f la n d, a s e t o f farm m achinery, and lim ite d c a p ita l reso u rces. Labor is supplied by th e farm o p e ra to r and by v a rie d q u a n titie s of h ire d la b o r. ^This re p re se n ts th re e p e rce n t o f farms in the study a re a. ^Heady, E arl 0., Economics o f A g ric u ltu ra l P roduction and Resource Use, (Englewood C li f f s, New Je rse y : P re n tic e -H a ll, I n c., 1952). ^Leftw ich, Richard H., The P ric e System and Resource A llo c a ti o n, (New York: H olt, R in e h a rt, and W inston, 1966), pp Ferguson, C. E., Microeconomic Theory, (Homewood, I l l i n o i s : Richard D. Irw in, In c., 1969), pp

36 19 This study was conducted under the assum ption o f p e rfe c t com petitio n in the resource and product m arket. In p e rfe c t co m p etitio n, the market is said to possess the follow ing c h a r a c te r is tic s : " ( a ) each economic agent i s so sm all r e la tiv e to the m arket th a t i t can ex e rt no p e rc e p tib le in flu en ce on p ric e ; (b) the product is homogeneous; (c) th e re is fre e m o b ility o f a l l re so u rc e s, in clu d in g free and easy e n try and e x it of b usiness firm s; and (d) a l l economic agents in the market possess com plete and p e rfe c t knowledge." The assum ptions o f p e rfe c t com petition are n o t n e c e ss a rily v a lid fo r a l l co n d itio n s encountered in the r e a l world. However, they p ro vide a framework fo r the a n a ly sis th a t is a v alu ab le aid to the d ecision making p ro cess. The li n e a r programming technique employed in th is study conforms to th is a n a ly tic a l framework. The tr a d i ti o n a l prod u ctio n fu n ctio n shows th e p h y sical r e l a t i o n ship between in p u ts and o u tp u t, and in i t s sim p lest form can be expressed as: A = f (a, b, c,.... n ), where A is the output (product) and a, b, c... n are production In p u ts. When w ritte n in the follow ing form: A = f (a b, c,.... n ), the production is said to vary w ith the q u a n tity o f in p u t a, w hile the remaining in p u ts are c o n sta n t. The l a t t e r expression denotes the Ferguson, o. c i t., p. 224.

37 20 fa c to r-p ro d u c t re la tio n s h ip and shows how the production o f one output ( r ic e, fo r example) w ill vary as more u n its of a v a ria b le input ( f e r t i l i z e r, fo r example) a re added to a fixed s e t ("bundle") o f o th er resources (lan d, la b o r, and c a p i ta l ). The fa c to r-p ro d u c t re la tio n s h ip g follow s the law o f dim inishing re tu rn s or law o f v a ria b le p ro p o rtio n s. The production fu n ctio n considering two v a ria b le inputs may be w ritte n as follow s: A = f (a, bj c,.... n) The above production fu n ctio n introduces th e notion o f the subs t i t u t i o n o f v a ria b le in p u ts in the production process and may be used to determ ine the le a s t c o st com bination of re so u rces. For example, i t is p o ssib le to show th e p ro p o rtio n s th a t one forage crop s u b s titu te s fo r an o th er in the p roduction of w intergrazed calv es. The f a c to r - fa c to r model y ie ld s le a s t c o st com binations of v a ria b le in p u ts fo r sp e c ifie d le v e ls of o u tp u t. I f a and b are v a ria b le inputs and MP stands fo r m arginal product o f the v a ria b le fa c to r, a le a s t co st com bination is achieved when MP a MP, b which d efin e s a p o in t on the expansion path o f the firm ( i t is a lso a p o in t on the long run average c o st curve). An a d d itio n a l u n it of a w ill add PQ to t o t a l c o s t, where Pa equals p ric e of p u rely com petitive in p u t. This a d d itio n a l input w ill in crease 9 B ila s, o. c i t., pp