Livestock Production Theory PDF

Economic concepts used in livestock production Livestock production: a process by which inputs /resources are combined and transformed into final goods and services. Farm /firm is any economic institution that transforms factors of production (inputs) into animal goods (output). ...

Economic concepts used in livestock production Livestock production: a process by which inputs /resources are combined and transformed into final goods and services. Farm /firm is any economic institution that transforms factors of production (inputs) into animal goods (output).  Production Is the process of transformation of inputs into outputs.  Productivity It measures the relation between outputs (revenue) and inputs. It expressed in numerical values  Productivity can be calculated like this: Outputs ____________ Inputs Labour productivity can be calculated like this: Output of farm ____________________ Number of labour  The productivity of capital: Annual revenue of farm ________________________ Total value of capital used Importance of productivity measure *When productivity increases, the investor can: Reduce prices, to the benefit of consumers Increase wages, to the benefit of their workers Earn a higher profit, to the benefit of the entrepreneur  Increase production, using the same number of skilled workers Save labour costs, by reducing the number of workers. For the national economy, increased productivity can: - Increase exports, because local goods are more competitive in price - Encourage growth in output - Increase wages - Reduce prices and inflation - Increase consumer spending, so other businesses benefit from a more prosperous market.  Labour productivity is important for any business, and can be increased by: - Improved technology - Better organization and management, so that less time is wasted -An improved attitude to work, with more effort and better attendance  - Better working conditions - Human resource development, resulting in a better educated and healthy labour force.  Factors affecting production 1. Natural factors: like climatic conditions, soil type affect production. Production can be diminished due to natural calamities like flood, drought etc. 2. Technical factors: Can positively influence production. Use of improved variety, fertilizers, insecticides etc. can give us more production.  3. Infrastructure facilities: Like transport, credit, storage etc. 4. Character of people: determines productivity. The hard workers and sincere workers always produce more and hence it is very important factor which influences production. Any livestock production process depends up on different (inputs) which called production factors.  Production factors (inputs) Def. They are inputs or ingredients which mixed together to produce output. It usually includes factors of production which are land, labour, capital (cash and non cash) and management (manager) see chapter I.  Classification of inputs inputs Variable Fixed inputs (VI) inputs (FI)  Variable inputs (VI): They are inputs which can be easily changed with the change of level of livestock products that produced. for example, feed, drugs, electricity and raw materials.  Fixed inputs (FI) inputs which not changed with change of level of production in the short run only. Examples of fixed inputs are: equipment or machines, land and building.  Effect of time factor on inputs The short run (SR) is the period in which the farm cannot change its fixed inputs. The short run is not long enough to allow changes of the variable inputs (usually less than one year). The long run (LR) is defined as the period that is long enough to allow the changes of all inputs (usually more than one year), none of which are fixed, even the technology. For example, while in the short run a farm can increase its production by working extra hours, in the long run, the farm can decide to build and expand its production area to install capital-intensive machines and avoid overtime.  Product: is the end result of production process. Total product (TP) - is the total amount of livestock goods (output) that produced in a certain period. Average Product (AP) is the total product of livestock produced divided by the Number of production units (X) (input). This is a measure of how efficiently input is converted to output. Y (Total production) AP = ---------------------------------------------------- X (Number of production units)  Marginal product (MP) is the change in TP (output) per unit change in (input). /\ Y MP = ------------------------ /\ X  The production function Def: refers to the physical relationship between the inputs or resources of a firm and their output from goods and services at a given period of time.  Y = f ((L, N, K, ………..) Where Y = output, L =labor, N= Land, K = capital………….etc This equation tells us the quantity of the output 'Y' which is produced by the given quantities of inputs.  The production function may be also expressed in linear and logarithmic form as follow: Linear form: Y= a+ n1 X1 +n2 X2 – n3 X3 +…… Logarithmic form: Y= a+ n 1log X1 +n2 log X2 – n3 log X3 +…… Where Y= Yield or quantity a= constant n= value of X1 input X1= input Assumptions of production function 1. It is associated with specified period of time. 2. The state of technology is constant during the period of time. 3. The producer is expected to use the best and the most efficient technique. 4. The factors of production are known in quantity.  According to time period, the production functions of any livestock projects are classified into two types: production functions Short Run Long Run  (i) Short Run Production Function (Production with only one variable input) It is a type of input-output relationship in which the quantity of one input is variable and the quantities of other inputs are constant. i.e some inputs held constant and the ratio of one variable input increase to that of fixed inputs So, this type of production functions called the Law of Variable Proportions or the Law of Diminishing Returns or Law of Returns to a Factor.  (ii) Long Run Production Function (Production with all inputs are variable) It is a type of input-output relationship in which the all inputs are variable. There are no fixed inputs in the long run. So output can be varied by changing all the inputs simultaneously. i,e all inputs are increased in the same proportion to increase of output. So, the production function is called Law of Returns to Scale according to the scale of production which indicates how production responds to proportional changes in all inputs.  Elasticity of production (Ep) It is the percentage change of an output to the percentage change of an input. It is an indicator of the responsiveness of output to changes in input. Or it is the percentage changes in the production in relation to the percentage changes in the production resource = elasticity of the total product curve, also equal to the percentage change in production / percentage change in the production factor.  This can be represented by the following equation: /\ Y /\ X = --------------- / -------------- Y X /\ Y X = -------------- X -------------- /\ X Y Law of Variable Proportions /Law of Diminishing Returns (one variable input-output relationship): The law of diminishing returns is one of the most important laws of production. This law used to analysis the relationship between one variable input and output of livestock in short run period. Def: As equal amount of one input are added and the other inputs are fixed, the total output increase gradually till reach to saturation point, after this point the increase in the level of input give less and less output.  Assumptions The law of diminishing returns occurs under the following assumptions: (i) Short run. The law assumes short run situation. The time is too short for a farm to change the quantity of fixed inputs. All the resources apart from this one variable are held unchanged in quantity and quality. (ii) Constant technology. The law assumes that the technique of production remains unchanged during production. (iii) Homogeneous factors. Each factor unit is identical in amount and quality. The law of variable proportions is explained with the help of following table. Land No. ofTotal Marginal Average workers product* product* product* 1 1 10 10 10 1 2 30 20 15 1 3 60 30 20 1 1 4 88 28 44 1 5 100 12 50 1 6 110 10 55 1 7 118 8 16.85 1 8 118 0 14.75 1 9 110 –8 12.22 1 10 100 –10 10  With a given fixed quantity of land, numbers of workers are increased from 1 to 10. Up to 3rd unit of worker, the total product increases at an increasing rate and after that at diminishing rate. Average product increases up to 4th unit of labour and falls throughout thereafter.  When there are 7 workers engaged, the output is maximum, i.e., 118 kg. Beyond this point, the total product starts diminishing. From the third (MP) column that marginal product is falling continuously after 3rd unit of worker and even becomes negative beyond 8th unit of worker.  The law can be also explained using Fig. 10 shown as under: TP and MP, and AP curves and Stages of production  Relationship between Average and Marginal Curves When the marginal is less than the average, the average decreases. When the marginal is equal to the average, the average does not change (it is either at maximum or minimum) When the marginal is greater than the average, the average increases Properties of TP, MP and AP curves and the three stages of production Stage of Total product Marginal product Average Product production Increases and then decreases Stage I Increase at increasing Increases and then increases rate then increase at decreases diminishing rate Continues increase rate atto diminishing and be becomes maximum Stage II Continues to increase at Continues to diminish and Becomes equal to diminishing rate and be becomes equal to zero marginal product and becomes maximum then begins to diminish Stage III Diminishes Becomes negative Continues to diminish but will always be greater than zero.  Now In which stage a producer would like to operate? Answer ‘Stage-II’. Why?  A producer will not like to remain in Stage-I although his MP is rising and TP is rising at an increasing rate. The farm, in this stage, always has incentive to expand and earn more profit. So it is always willing to come out of this stage and earn more profit through expansion. In Stage-III, TP starts declining and MP becomes negative. No farm would like to employ such doses of labour which may decrease its TP with negative MP. This stage is also not a stage of producer‘s equilibrium.  In Stage-II a producer will like to operate. In this stage, the farm reaches the point of equilibrium where its profits are maximized. Stage-II satisfies an important condition of producer‘s equilibrium: that in a state of equilibrium, farm‘s MP must be rising.  Producer equilibrium Producer equilibrium under the pure competition is the determination of the production level at which the cost of the production unit is at the minimum level and the determinant of the best resource mixture which achieve the high profit under the production budget allowed. So we must determine the best combinations of production resources that if we recombined it not give or yield:- 1-The same amount of production by the lower-level of resources. 2-High amount of production with the same resource combinations. Than the same production and this conditions is the necessary condition for achieving the economic efficiency but it is not enough conditions for maximization the economic efficiency.  Point of maximization of profits To convert physical to monetary terms, multiply the product (Y) by its price (Py) and the resource (X1) by its price (PX1). Then MP become MVP AP becomes AVP TP becomes TR Marginal return MR = /\Y * PY Marginal cost MC = /\X1 * PX1.  The point of maximum profit occurs when units of the variable resource have been added to the fixed resource until the MR is equal to the marginal cost of the variable resource. At this point, MR = MC /\Y * PY = /\X1 * PX1  /\Y PX1 ---- = -------- /\X1 PY Input price i.e. MP = -------------------------- Output price  Px So the point of maximum profit occurs where the line --------- Py Is tangential to the total product curve. It should be noted that this point of maximum profit is short of the point of maximum total product would be the point of maximum profit, only if the resource were free.  Production with two Variable Inputs (Isoquant analysis) We now analyze production function by allowing two factors say labor and capital to vary while all others are held constant (input- input relationship with fixed output). With both factors are variable, a farm can produce the same level of output by using more labor and less capital or a greater amount of capital and less labor or moderate amounts of both. A farm continues to substitute one input for another while continuing to produce the same level of output. If two inputs say labor and capital are allowed to vary, the resulting production function can be illustrated in the figure.  In this figure each curve (called an isoquant) represents a different level of output. The curves which lie higher and to the right represent greater output levels than curves which are lower and to the left For example, point D represents a higher output level of 250 units than point A or B which shows output level of 150 units. The curve isoquant which represents 150 units of output illustrate that the same level of output (150 units) can be produced with different combinations of labor and capital. Combination of labor and capital represented by A, can employ OL1 quantity of labor and OC1 units of capital to produce 150 units of output.  The combination of labor and capital represented by point B will use only OL2 units of labor and OC1 of capital to produce the same level of output. Thus, if a country has surplus labor and less capital, it may use the combination of labor and capital represented by point A. In case the country has abundant capital and less labor, it might produce at point B. The isoquants through points A and B shows all the different combinations of labor and capita that can be used to produce 150 units of output.  Isoquant An isoquant may be defined as: "A curve each point on it produces the same level of production (output) with various resources combinations. The modern economists are using isoquant curves for determining the optimum input combination to produce certain units of a commodity at the least cost.  The concept of isoquant or equal product curve can be better explained with the help of schedule given below: Combinations Factor X Factor Y Total Output (kg meat) A 1 14 100 B 2 10 100 C 3 7 100 D 4 5 100 E 5 4 100  In the table given above, it is shown that a producer employs two factors of production X and Y for producing an output of 100 kg meat. There are five combinations which produce the same level of output (100 kg meat).  The factor combination A using 1 unit of factor X and 14 units of factor Y produces 100 kg. The combination B using 2 units of factor X and 10 units of factor Y produces 100 kg. Similarly combinations C, U and E, employing 3 units of X and 7 units of Y, 4 units of X and 5 units of Y, 5 units of X and 4 units of Y produce 100 units of output, each. The producer, here, is indifferent as to which combination of inputs he uses for producing the same amount of output. The alternative techniques for producing a given level of output plotted on a graph  Isocost: Def: a curve, each point on it gives the same cost but at different resources combinations. Or a curve which shows various combinations of inputs that cost the same total amount Isocost curve