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:

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· 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:

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· 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

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**Step 1: Market Supply and Demand Graph**

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# · Create a Market Supply and Demand Graph:

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· 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

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· **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

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· **Estimate Revenue and Costs:**

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· 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

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· **Decision Making:**

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· 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:

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· 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:

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· 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.