Chapter 0 – Refresher calculus
Y = ln(x) dy/dx = 1/x
Product som-methode: y= x2+ 2x – 24
y=(x-4)(x+6)
ABC formule: D = b2 – 4AC
D > 0: 2 oplossingen −b √ D b√D
x= ofx =
2a 2a
D = 0: 1 oplossing
D < 0: geen oplossing
Optimum berekenen:
1. Bepaal afgeleide
2. Bereken nulpunten
3. Bepaal max of min met de tweede afgeleide
a. Y’’ > 0: geef een minimum
b. Y’’ < 0: geef een maximum
4. Vul x in y in
Lagrangian example:
,Chapter 1 – positon of agriculture and agribusiness within the economy
Final demand: consists of consumer expenditure, public expenditure, investment and export
Net value added (NVA): is the sum of rewards of producton factors or factor inputs.
Gross value added (GVA): NVA + depreciaton
Net domestic product (NPP): sum of all NVA
Gross domestic product (GPP): sum of all GVA. Caveats of GDP:
Does not include external efects
o External efect: is a producton that is not priced. External efects can be
caused by producton and consumpton.
Not-valued producton and volunteering not included
Not measure of welfare, because it does not measure utlity
Does not tell anything about income distributon
Net national income: NDP + net primary incomes earned abroad
When calculatng percentage change in a complex formula, take only what changes and keep other
parts constant.
Reasons agricultural GVA decreases compared to agricultural producton:
Diferentaton: divided vertcally cheese in manufacturing frm
Integraton: brought together vertcally tomato growers start sales organizaton
Specialisaton: dividing horizontally milk farm becomes specialized milk farm
Diversifcaton: brought together horizontally arable farm starts mini-camping
High productvity: against small growth demand food immobile producton factors
Specifc factors: price changes, policies etc.
,Chapter 2 – producton and technological change
Key concepts:
Firm: an organizaton that converts inputs such as labour, capital and raw materials into outputs.
Supply lag: lag between the decision to produce and the moment when output becomes available
Why do firms exist?
Economies of scale: Due to indivisibilites (employee needs skill to do all the jobs) and
division of labor (more people is more efcient. In short, they produce more together than
the sum of individual outputs had they all worked individually.
Reducton of transacton costs: less negotatons on prices and less transactons.
Why does not only one firm exist?
benefts of economies of scale reduce overtme.
In large frms people are less motvated.
Large monitoring and coordinaton cost in large frms
Specifc chairacteiristcs of agiricultuire:
Farms operate in a market of perfect competton: they produce the same commodity and
compete for the use of inputs, e.g. land. They are price takers.
Supply lag: is the technically determined length of tme between the decision to produce and
the moment when output becomes available.
Producton and available uuantty of some products is subject to seasonality .
Uncertainty: about the level of output that will result from given uuanttes of input.
Joint producton: thus producing milk and calves at the same tme.
In economics technology is represented by a production set: the producton set are all possible
combinatons of inputs and outputs that are technologically feasible.
In a single-output (single output y) case, the upper boundary of the producton set shows the
maximum amount of output y that can be produced each combinaton of inputs. The euuaton for
this upper boundary is the Production function: Y = f(x1, x2, x3).
In a multple-output case, the boundary of the producton set is called the transformation function:
F(y1, y2, x1, x2, x3)=0.
The producton functons shows the relatonship between inputs and outputs to which an individual
farm, the agricultural sector agribusiness are confronted. Inputs can be:
variable inputs: can be adjusted in the short run
quasi fixed inputs: can be adjusted in the long run
, Neo-classical assumptons of the producton functon:
it is contnuous (smooth)
It is non-decreasing in inputs: αy/ αxi ≥ 0. This is the marginal product, which is the extra
output of one additonal unit of input.
It is concave in inputs: α2 y/ α2xi ≤ 0
These conditons lead to the following certaintes.
a. The marginal product of each input is non-negatve
b. The marginal product of an input cannot increase as more of the input is used, holding the
level of other inputs constant: by adding input, we can at least produce the same uuantty of
output as before. It eventually can become even negatve (too much water foods the crops).
Featuires of the piroducton functon that give insight to the economic stiructuire of piroducton
Producton elastcites of inputs
Economies of scale
Substtuton elastcites between inputs
Production elasticity
Although the marginal product can be used to identfy the importance of a partcular input xi in the
producton of output y, production elasticity is better. This is because producton elastcity avoids
the problem of calculatng with diferent units of measurement. Producton elastcity is given by:
Eyxi = percentage change in output y / percentage change in input xi
Economies of scale
Where the producton elastcity describes the efect on output of a change in a single input, the
concept of returns to scale describes what happens to output if all inputs change by the same
proporton. The scale parameter (U) measures this property of the producton functon. If all inputs
change by the same proporton β, the scale parameter (U) gives the corresponding increase in y,
expressed relatve to β. There are three optons:
U < 1 decreasing returns of scale
U = 1 constant (product functon is called linearly homogenous or homogenous of degree
one)
U > 1 increasing returns of scale
The scale parameter is always euual to the sum of producton elastcitese
Substitution elasticity
Neoclassical producton theory ofen assumes that output is contnuous functon of inputs.
Therefore, it is possible to vary proportons of inputs while holding the level of output constant. An
important feature of a producton process, and of the producton functon describing it, is the rate at
Y = ln(x) dy/dx = 1/x
Product som-methode: y= x2+ 2x – 24
y=(x-4)(x+6)
ABC formule: D = b2 – 4AC
D > 0: 2 oplossingen −b √ D b√D
x= ofx =
2a 2a
D = 0: 1 oplossing
D < 0: geen oplossing
Optimum berekenen:
1. Bepaal afgeleide
2. Bereken nulpunten
3. Bepaal max of min met de tweede afgeleide
a. Y’’ > 0: geef een minimum
b. Y’’ < 0: geef een maximum
4. Vul x in y in
Lagrangian example:
,Chapter 1 – positon of agriculture and agribusiness within the economy
Final demand: consists of consumer expenditure, public expenditure, investment and export
Net value added (NVA): is the sum of rewards of producton factors or factor inputs.
Gross value added (GVA): NVA + depreciaton
Net domestic product (NPP): sum of all NVA
Gross domestic product (GPP): sum of all GVA. Caveats of GDP:
Does not include external efects
o External efect: is a producton that is not priced. External efects can be
caused by producton and consumpton.
Not-valued producton and volunteering not included
Not measure of welfare, because it does not measure utlity
Does not tell anything about income distributon
Net national income: NDP + net primary incomes earned abroad
When calculatng percentage change in a complex formula, take only what changes and keep other
parts constant.
Reasons agricultural GVA decreases compared to agricultural producton:
Diferentaton: divided vertcally cheese in manufacturing frm
Integraton: brought together vertcally tomato growers start sales organizaton
Specialisaton: dividing horizontally milk farm becomes specialized milk farm
Diversifcaton: brought together horizontally arable farm starts mini-camping
High productvity: against small growth demand food immobile producton factors
Specifc factors: price changes, policies etc.
,Chapter 2 – producton and technological change
Key concepts:
Firm: an organizaton that converts inputs such as labour, capital and raw materials into outputs.
Supply lag: lag between the decision to produce and the moment when output becomes available
Why do firms exist?
Economies of scale: Due to indivisibilites (employee needs skill to do all the jobs) and
division of labor (more people is more efcient. In short, they produce more together than
the sum of individual outputs had they all worked individually.
Reducton of transacton costs: less negotatons on prices and less transactons.
Why does not only one firm exist?
benefts of economies of scale reduce overtme.
In large frms people are less motvated.
Large monitoring and coordinaton cost in large frms
Specifc chairacteiristcs of agiricultuire:
Farms operate in a market of perfect competton: they produce the same commodity and
compete for the use of inputs, e.g. land. They are price takers.
Supply lag: is the technically determined length of tme between the decision to produce and
the moment when output becomes available.
Producton and available uuantty of some products is subject to seasonality .
Uncertainty: about the level of output that will result from given uuanttes of input.
Joint producton: thus producing milk and calves at the same tme.
In economics technology is represented by a production set: the producton set are all possible
combinatons of inputs and outputs that are technologically feasible.
In a single-output (single output y) case, the upper boundary of the producton set shows the
maximum amount of output y that can be produced each combinaton of inputs. The euuaton for
this upper boundary is the Production function: Y = f(x1, x2, x3).
In a multple-output case, the boundary of the producton set is called the transformation function:
F(y1, y2, x1, x2, x3)=0.
The producton functons shows the relatonship between inputs and outputs to which an individual
farm, the agricultural sector agribusiness are confronted. Inputs can be:
variable inputs: can be adjusted in the short run
quasi fixed inputs: can be adjusted in the long run
, Neo-classical assumptons of the producton functon:
it is contnuous (smooth)
It is non-decreasing in inputs: αy/ αxi ≥ 0. This is the marginal product, which is the extra
output of one additonal unit of input.
It is concave in inputs: α2 y/ α2xi ≤ 0
These conditons lead to the following certaintes.
a. The marginal product of each input is non-negatve
b. The marginal product of an input cannot increase as more of the input is used, holding the
level of other inputs constant: by adding input, we can at least produce the same uuantty of
output as before. It eventually can become even negatve (too much water foods the crops).
Featuires of the piroducton functon that give insight to the economic stiructuire of piroducton
Producton elastcites of inputs
Economies of scale
Substtuton elastcites between inputs
Production elasticity
Although the marginal product can be used to identfy the importance of a partcular input xi in the
producton of output y, production elasticity is better. This is because producton elastcity avoids
the problem of calculatng with diferent units of measurement. Producton elastcity is given by:
Eyxi = percentage change in output y / percentage change in input xi
Economies of scale
Where the producton elastcity describes the efect on output of a change in a single input, the
concept of returns to scale describes what happens to output if all inputs change by the same
proporton. The scale parameter (U) measures this property of the producton functon. If all inputs
change by the same proporton β, the scale parameter (U) gives the corresponding increase in y,
expressed relatve to β. There are three optons:
U < 1 decreasing returns of scale
U = 1 constant (product functon is called linearly homogenous or homogenous of degree
one)
U > 1 increasing returns of scale
The scale parameter is always euual to the sum of producton elastcitese
Substitution elasticity
Neoclassical producton theory ofen assumes that output is contnuous functon of inputs.
Therefore, it is possible to vary proportons of inputs while holding the level of output constant. An
important feature of a producton process, and of the producton functon describing it, is the rate at
