Horti-Business Management (2+0)

Technical relationships

• Technical relationships could be analyzed in the short run and in the long run. Technical or production relationships in the short run could be grouped as;
• Factor - Product relationships
• Factor - Factor relationships
• Product - Product relationships
Factor - product relationships

• This relationship is analyzed by applying various levels of an input (X1) to a crop, while keeping all other inputs at a constant level, and examining its effect on the output (Y). This process enables to determine how much of an input (optimum level) should be applied to get maximum yield.
Factor - Factor relationship

• This is about combining two inputs which are used in crop production. The nutrient requirement for crops could be met by applying organic (FYM, vermicompost, enriched FYM) and inorganic fertilizers. It is essential to decide the least cost combination of two inputs that could be used for cultivating a crop to get a given level of yield. The two inputs considered in this case should be substitutable.
Product - Product relationship

• The resources at the disposal of the farmer are limited and they have alternative uses. Given the level of resources, what are the crops/enterprises that he can raise and at what level? is an important decision. This relationship brings out the product mix or combination of enterprises that would maximize the revenue from the farm.
Long run

• A technical or production relationship in the long run is called as returns to scale. In the long run all inputs become variable and none is fixed. Returns to scale explains the nature of output when all the inputs are changed by the same proportion. If output increases by that same proportional change (as that of the inputs) then it is termed as constant returns to scale. If output increases by less than the proportional change in inputs, then it is termed as decreasing returns to scale. If output increases by more than the proportional change in inputs, it is termed as increasing returns to scale.
Factor - Product relationship

• The factor - product relationship is examined by holding one input variable and all other inputs constant. The response of the crop (in terms of yield) to various levels of an input applied to it is studied. The analysis could be done graphically, algebraically or even tabular analysis. The relationship between nitrogenous fertilizer applications on yield of a tomato could be analyzed. The relationship could be either of the following;
• Increasing marginal returns - If an unit increase in input (nitrogenous fertilizer) applied to the crop (tomato) causes more than an unit increase in the output, it is termed a increasing marginal returns
• Constant marginal returns - If an unit increase in input (nitrogenous fertilizer) applied to the crop (tomato) causes an unit increase in the output, it is termed a constant marginal returns
• Diminishing marginal returns - If an unit increase in input (nitrogenous fertilizer) applied to the crop (tomato) causes less than an unit increase in the output, it is termed a diminishing marginal returns
• The details of nitrogenous fertilizer applied at various levels are applied to one acre of tomato and the corresponding yield response is given in Table 1.
Table 1. Fertilizer application and yield of tomato


Nitrogenous fertilizer (kg) X	Tomato Total Physical Product (TPP) Yield (Qtl) (Y)	Change in fertilizer use Δ X	Change in Yield Δ Y	Marginal Physical Product (MPP) Δ Y / Δ X	Average Physical product (APP) Y / X
10	50	-	-	-
20	110	10	60	6.0	5.5
30	175	10	65	6.5	5.8
40	225	10	50	5.0	5.5
50	250	10	25	2.5	5.0
60	270	10	20	2.0	4.5
70	275	10	5	0.5	3.9
80	265	10	-10	-1.0	3.2
90	250	10	-15	-1.5	2.7


• From the table it could be observed that as the input level increases, the yield increases and reaches the maximum (275 Qtls) and declines. During this process, the marginal physical product (MPP) increases and later declines to negative, while average physical product also increase and later decreases, but remains positive. MPP is the change in yield for a unit increase in input (X).
• In general it would not be wise to stop applying variable input as long as the average output per unit of input (APP) is increasing. Likewise it would not be wise to continue adding input when TPP is falling. Based on the above logic, economists divide the production function into three stages or regions.
The characteristics of the 3 stages can be summarized as follows


Particulars	Stage I Irrational Stage	Stage II Rational Stage	Stage III Irrational Stage
TPP	Increases at increasing rate to up the point of inflection then increases at Decreasing rate.	Continue to increase at decreasing rate and reaches maximum	Decreasing
APP	Increases and reaches the maximum	Decreasing	Continue to decrease but positive
MPP	Increases and reaches the maximum and then decreases	Continue to decrease and becomes zero.	Continue to decrease
Diminishing Starts for:	MPP	APP	TPP


• Optimum input use will be at the point where the value of the additional output equals the additional input cost. (Marginal revenue = Marginal cost) i.e., MC=MR
∆Y.PY =∆X.PX
∆Y/∆X = PX/PY
(∆Y/∆X).PY=PX

• Value of Marginal Product = Marginal Input Cost. (i.e., Input cost) = VMP = PX
• Diminishing marginal returns is a characteristic feature of agricultural production.
1. Technology of production remains constant. If there is improvement, it technology APP and MPP will not decrease. Technology delays the operation of DMR in agriculture.
2. It is a short – run analysis, hence all factors are not variable.
3. All units of variable factor are homogenous.