Economic principles applied to farm management

The outpouring of new technological information is making the farm problems increasingly challenging and providing attractive opportunities for maximising profits. Hence, the application of economic principles to farming is essential for the successful management of the farm business.

Some of the economic principles that help in rational farm management decisions are:
1. Law of variable proportions or Law of diminishing returns: It solves the problems of how much to produce. It guides in the determination of optimum input to use and optimum output to produce.. It explains the one of the basic production relationships viz., factor-product relationship
2. Cost Principle: It explains how losses can be minimized during the periods of price adversity.
3. Principle of factor substitution: It solves the problem of ‘how to produce?. It guides in the determination of least cost combinations of resources. It explains factor-factor relationship.
4. Principle of product substitution: It solves the problem of ‘what to produce?’.
It guides in the determination of optimum combination of enterprises (products). It explains Product-product relationship.
5. Principle of equi-marginal returns: It guides in the allocation of resources under conditions of scarcity.
6. Time comparison principle: It guides in making investment decisions.
7. Principle of comparative advantage: It explains regional specialisation in the production of commodities.

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raphael answered the question on August 12, 2021 at 05:36