Case Study #1:

Cost Minimization and Production Decisions for a Corn Farm

 Scenario: The Weinandt Family Farm in Wynot, NE raises livestock and grows crops. Commonly grown crops in Nebraska are corn and soybeans. You are a consultant hired to help a farm similar to the Weinandt Farm make decisions about how much corn to grow this year.

Assignment Details Objective:

To use Excel for data analysis and apply economic concepts to make informed production and cost minimization decisions for a corn farm.

Instructions:

 1.     Market Data Analysis:

·        Using the provided market data, create a market supply and demand graph in Excel.

·        Determine the market equilibrium price and quantity for corn.

 

2.     Cost and Quantity Estimates:

 

·        Using the provided firm cost and quantity estimates, calculate the following:

 

·        Fixed Costs (FC)

 

·        Variable Costs (VC)

 

·        Average Total Cost (ATC)

 

·        Average Fixed Cost (AFC)

 

·        Average Variable Cost (AVC)

 

·        Marginal Cost (MC)

 

·        Graph ATC, AFC, AVC, and MC in Excel.

 

3.     Cost Minimization Analysis:

·        Based on your calculations, identify the range of quantities over which the Average Total Cost (ATC) is minimized.

·        Determine the optimal quantity of corn that the farm should aim to produce to minimize costs.

4.     Revenue and Profit Analysis:

 

·        Using the optimal quantity identified, estimate the Total Revenue (TR), Total Cost (TC), and Profit/Loss for the farm.

·        Calculate these values using the market equilibrium price.

 

5.     Production Decision:

 

·        Based on your analysis, decide whether the farm should grow corn or leave the fields bare.

·        Provide a detailed explanation of your decision, supported by your calculations and economic concepts.

6.     Market Entry/Exit Analysis:

 

·        Analyze whether farms will enter this market, leave the market, or remain constant based on the profitability and cost structure.

·        Explain your reasoning using economic theory related to perfectly competitive markets.

Excel Data and Calculations

 

Step 1: Market Supply and Demand Graph

 

·        Create a Market Supply and Demand Graph:

 

·        Plot the supply and demand curves using the provided market data.

 

·        Identify the equilibrium point where the supply and demand curves intersect.

 

Step 2: Firm Cost Calculations

 

·        Calculate Costs:

 

·        Use the provided data to calculate FC, VC, ATC, AFC, AVC, and MC.

 

·        Use Excel formulas to automate these calculations for different levels of output.

 

Step 3: Cost Minimization

·        Graph Costs:

 

·        Create graphs for ATC, AFC, AVC, and MC.

 

·        Identify the range of output where ATC is minimized.

 

Step 4: Revenue and Profit Calculations

 

·        Estimate Revenue and Costs:

 

·        Calculate TR using the formula: TR = Price * Quantity

 

·        Calculate TC using the formula: TC = FC + VC

 

·        Determine Profit/Loss using the formula: Profit/Loss = TR – TC

 

Step 5: Production Decision

 

·        Decision Making:

 

·        Analyze your calculations to determine if growing corn is profitable.

 

·        Consider economic principles such as cost structures, market conditions, and profitability.

Step 6: Market Analysis

 

·        Market Dynamics:

 

·        Discuss the potential for new farms to enter the market or existing farms to exit based on profitability.

·        Use economic theories related to market entry and exit in perfectly competitive markets.

Submission Requirements

1.     Excel File:

 

·        Submit an Excel file with all your calculations, graphs, and analysis.

 

·        Ensure all formulas and data are correctly inputted and clearly labeled.

 

2.     Written Report:

 

·        Submit a comprehensive report that includes the following sections:

 

·        Introduction: Overview of the scenario and objectives.

 

·        Market Analysis: Supply and demand graph, equilibrium price, and quantity.

·        Cost Analysis: Detailed calculations and graphs of ATC, AFC, AVC, and MC.

·        Cost Minimization: Identification of the optimal production quantity.

 

·        Revenue and Profit Analysis: Calculations of TR, TC, and Profit/Loss.

 

·        Production Decision: Explanation of whether to grow corn or leave the fields bare.

·        Market Analysis: Discussion of market entry/exit dynamics.

 

·        Conclusion: Summary of findings and recommendations.