AGRI 639: PRODUCTS TO PROFITS Spring 2024 Homework #2.1 (10 points) This exercise links budgeting techniques with the economic theory of production. We will examine furrow irrigated corn in western Colorado where three acre-feet of irrigation water is applied during the crop season to answer the questions that follow. You will use a CSU Crop Enterprise Budget for this setting (2022 budget available from https://abm.extension.colostate.edu/enterprise-budgets/). Budgets, by definition, reflect the past and it is your use of the budget in management planning that can anticipate the future. Assume the technical coefficients and prices are the same as the budget unless directed to change something. In your response to each question be sure to demonstrate how you determined that your stated values are the appropriate answer. Thinking back to the discussion of the profit equation: A) What are the total variable costs estimated in this budget? B) What are the total fixed costs? C) If a producer expected that the budget accurately reflected their circumstances except that the average yield expected was 200 bushels per acre and corn would sell for $5.75 per bushel, what would be their expected profit for an average acre of this enterprise? Thinking about performance or planning measures: D) What would be the breakeven yield for corn given the producer's expectations above? E) What would be the breakeven price in the face of expected corn yields of 180 bushels per acre, 200 bu/ac, and 220 bu/ac? F) Suppose the Colorado Water Supply Outlook Report indicates a 20% reduction in potential water supplies compared to last year for most of the Western Slope. (Google it as it is a good read if you live in the western U.S. and most western states have a similar document. The current water year outlook is acceptable but abundant irrigation water creates few hard economic decisions.) If we expect 20% less irrigation water will be available this growing season than for the budgeted growing season, what values should be altered in the budget to make it more reflective of expected conditions? G) Your producer faces a planning price (current harvest corn cash contract price offered by a grain merchandizer in this area) of $6.50/bu. It is expected that at the margin an acre-inch of applied irrigation water will yield an additional 5.0 bushels. Using a partial budgeting approach and the actual numbers from the attached budget, calculate the expected change in net profit expected for 2024 if the predicted 20% irrigation water shortfall is realized this year. And relating the budget to economic concepts discussed in the previous module: H) Consider the case where a new and improved corn seed is developed. By planting this seed, yields are increased by 15%, but you must pay an additional 25% for the corn seed. All other costs will stay the same. Graphically demonstrate the economic concepts in play that would explain how 1 you would expect your producer to adjust to this opportunity. To do so, you should depict TPP, ATC, AVC, optimal quantity produced, and the profit realized both \"without\" and \"with\" this technology on a single graph (hand drawn is acceptable and preferred) and describe the relevant outcome(s) and economic intuition as to why this happens. 1} Using just information from the budget including the price and yield then 1) Calculate and compare the TPP realized under the new technology to the old TPP, 2) Calculate and compare the new ATC and AVC, to the old ATC and AVC, and 3) Calculate and compare the old profit to the new profit. How do these calculations compare to your graphical predictions in H above