Applying the knowledge of microeconomics in practice allows solving various issues that producers are facing. The importance of microeconomic analysis becomes more evident during the periods of economic slowdown like the current one. As the economic activity decreases, prices fall and firms have to find ways in order to remain profitable. This issue is crucial for agricultural producers, that currently facing the simultaneous decrease in prices and increase in input costs, as indicated by the recent news article (Hawkes, 2016 July 19). The author believes that the USDA program would help to reduce variable costs in the crop industry. Therefore, the aim of this essay is to show the effect of decrease in production costs using the graph analysis.
Thus, according to the article, USDA provides almost $45 million to invest in renewable and energy efficiency projects for small businesses and farms that would help to save 9 million megawatt hours annually. Indeed, as the author notes, the variable costs has fallen during the last two year, also because of decrease in energy and fertilizer prices. On the other hand, the increase in fixed costs have significantly offset this decline, resulting in the higher total costs. The graph analysis would help to understand the effect of these changes on agriculture producers in the US:
Figure 1. The change in the total costs for agricultural producer in the US
Indeed, the analysis shows that despite the decrease in variable costs, the larger growth in fixed costs has led to the increase in total costs. Therefore, the government should make efforts in helping to decrease not only variable costs but fixed costs either, such as interests, insurance payments etc.
Reference list:
Farm flows – leveraging your fixed costs. (2011, July 7). Little Seed Farm. Retrieved on July 23, 2016 from: http://littleseedfarm.com/to-be-a-farmer-blog/farm-flows-leveraging-your-fixed-costs.html
Hawkes, L. (2016, July 19). USDA initiative can help lower variable crop input costs. Southwest Farm Press. Retrieved on July 23, 2016 from: http://southwestfarmpress.com/cotton/usda-initiative-can-help-lower-variable-crop-input-costs
