Question

16. Consider a farmer who plans to sell a group of hogs this week but wonders if feeding them for another week before selling them would be more profitable. (10 points) During this 7 days, the hogs are expected to gain 10 lb. from 260 to 270 lb. Hog price is $0.40/ lb. and is expected to be constant. Feed costs $20.00 per one hundred pounds of gain. Labor and other costs are $0.40 per hog per week. The opportunity cost (lost interest) of not selling the hog this week is 20% on an annual basis. Analyze this problem (keeping the hogs an additional week) in a partial budget format. Note: it will be easiest to do these calculation in a S/hog basis. Positive Effects: 1. Additional receipts 2. Reduced expenses Total Positive Effect Negative Effects: 1. Reduced receipts 2. Additional expenses

Answer 1

Amount Answer 16. Particulars Positive Effects: 1 Additional Receipts An increase of 10lbs weight in 7 days time Additional hog price @ $0.40/1b x 10lbs = $ 4.00 2 Reduced Expenses nil Total Positive Effects : $ 4.00 Negative Effects: 1 Reduced Receipts 2 Additional Expenses Feed Costs- $20 per hundred pound gain = 10 lbs x $20/100 lbs $ 2.00 $ 0.40 Labour and other expense per hog per week 0.40 Loss of Interest (Opportuinty costs) $ (260lb x $0.40 x 20% x 1/52) It is the loss of interest on not selling hog one week prior at 260lbs @ $0.40 per Ibs, there are 52 weeks in a year hence divided by 52 Total Negative Effects : $ 2.80 Net Effect = Positive Effects - Negative Effects = $ 1.20 per week per hog Answer 17. YES, Hogs should be fed as there is an incremental benefit of $1.20 per week per hog