AEC 216.

Production
Economics and

Farm Management (1+1)

Lecture 1
Production Economics
• Production economics is the application of the principles of
microeconomics in production.
• It is concerned with the with choice in making production patterns and
alternative uses of resources to attain the objective of farmers, farm
families, society or nation within the framework of limited resources.
• Agricultural Production Economics is defined as an applied field of
science, wherein principles of economic choice are applied to the use
of resources like land, labour, capital and management in the farming
industry.
Farm Management
Meaning
• Farm Management comprises of two words i.e., Farm and Management.
• Farm means a piece of land, where crops and livestock enterprises are
taken up under common management and has specific boundaries.
Definition
• Farm management is a branch of agricultural economics which deals
with wealth earning and wealth spending activities of a farmer, in
relation to the organisation and operation of the individual farm unit for
securing the maximum possible net income.
Nature of Farm Management
• Farm management deals with the business principles of farming from
the point of view of an individual farm. Its field of study is limited to
the individual farm as a unit and it is interested in maximum possible
returns to the individual farmer.
• It applies the local knowledge as well as scientific finding to the
individual farm business.
• Farm management in short be called as a science of choice or decision
making.
Scope of Farm Management
• Farm Management is generally considered to be MICROECONOMIC in its
scope.
• It deals with the allocation of resources at the level of individual farm.
• The primary concern of the farm management is the farm as a unit.
• Farm Management deals with decisions that affect the profitability of farm
business.
• It seeks to help the farmer in deciding the problems like what to produce,
buy or sell, how to produce, buy or sell and how much to produce etc.
• It covers all aspects of farming which have bearing on the economic
efficiency of farm.
Objectives of Farm Management

• To examine the production and resource use pattern.

• To examine the factors responsible for present production and resource use pattern.

• To determine the ideal conditions of optimality.

• To analyze the extent of deviation of production.

• To study the extent of sub optimality of resource use on the farm.

• To identify the reasons for deviation of production and resource use.

• To advocate the technique of arriving optimum production and resource use on the farm.
Scope and Importance of Farm Management
Farm Management is generally considered to fall in the field of microeconomics.

It deals with the allocation of resources at the level of individual farm.

Farm management treats every farm as a separate unit, because of difference in

• The main or primary concern of the farm management is the farm as a unit.

• Farm Management is interested in maximum possible returns to the individual farmer.

• It applies the local knowledge as well as scientific findings to the individual farm
business. Farm management in short be called as a science of choice or decision making.

• It covers all aspects of farming which have bearing on the economic efficiency of farm.
Relationship of Farm Management with Other Sciences

1. Physical and Biological sciences like Agronomy, Animal husbandry, Soil science, Horticulture,
Plant breeding, Agricultural engineering provide information on input-output relationships in their
respective areas in physical terms. i.e., they define production possibilities within which various
choice can be made.

• These information give only the technical efficiency of the resource used in the production. But
the farmers’ interest is to measure the economic efficiency to derive the maximum net income.

2. Economic theory : Farm management is a specialized branch of wider field of economics.

• It draw the tools and techniques from economic theory. Examples: law of variable proportion, law
of substitution etc..,
3. Statistics is another science that has been used extensively by the agricultural economist.
This science is helpful in providing methods and procedures by which data regarding
specific farm problems can be collected, analysed and evaluated.
4. Social Sciences:
• Psychology provides information of human motivations and attitudes, attitude towards risks
depends on the psychological aspects of decision maker.
• Philosophy and religion forbids the farmers to grow certain enterprises, though they are
highly profitable. For example, Islam prohibits Muslim farmer to take up piggery while
Hinduism prohibits beef production.
• Cultivation of narcotics is quite a profitable proportion of farmer. but the decision to do so is
limited by sociological and ethical consideration.
5. Government Policies: The various piece of legislation and Government policies also influence
the production decisions of the farmer such ceiling of land, a liberal export policies, support price,
supply of irrigation water, food zones etc.,

6. Physical sciences : specify what can be produced and Economics specify and how much to
produced.

7. While sociology, psychology, political sciences etc., Specify the limitations which are placed on
choice, through laws, customs
 Basic Production Problems
The producer is faced with five basic production problems, on which they have to take decision.
• What to produce?
It’s a product – product problem, i.e., selection of enterprises
• How to produce?
It’s the methods of combination of resources to use i.e., least cost method of production, i.e.,
factor – factor problem.
• How much to produce?
It’s the level of inputs to apply in production. A factor – product problem, i.e., product mix
• When to buy and sell?
The seasonality of supply condition in factor market and product markets in variation in prices.
• Where to buy and sell?
The decision regarding the different markets.