Old Mule Farms Case AnalysisMANAGERIAL ECONOMICSOLD MULE FARMS CASE ANALYSISEXECUTIVE SUMMARYDonna and Jim Green are inherited the Old Mule Farms, a cow-calf operation, from their family. In addition to the major expense of this type of business which is the cost of feeding the cow with a variety of forage, nutritional supplements and minerals, other expenses are veterinary fees, labor wages, and expenses of owning and operating the farm. Due to the fall in the calf prices and the climb in the input cost, Old Mule Farms business made losses over the past years. Although some measures were implemented to increase the efficiency of the business, they were not sufficient enough to improve the situation. After watching The Cattle Show, The Greens family started wondering what size of could generate the maximum the profit, and decided to use 2008 figures to analyze and determine. To answer the above-mentioned problem, our team employed the Marginal Analysis method to determine the most appropriate cow size, which could generate the maximum profit (1100-lbs cow group). What is the appropriate cow size for the herd?The most appropriate cow size for the herd is the size that generates the maximum profit. In order to determine the maximum profit, we employed the Marginal Analysis method.Step 1: Calculating Marginal RevenueBased on Exhibit 3 and 4, we computed the Total revenue of each cow weight group by multiplying the price of calf in 2008 ($108/cwt) by the average calf weaning weight. After that, we calculated the Marginal Revenue (MR), following the formula below:
MR= [pic 1]Average cow weight (lbs)Average calf weaning weight (lbs)Total revenueMarginal revenue (MR)1000585631.8 1100611659.880.2811200617666.360.0651300611659.88-0.0651400589636.12-0.238Step 2: Calculating Marginal CostAccording to the case, dry matter, annual supplements and minerals cost are variables cost, which depend on the cow size. We calculated the total variable cost based on Exhibit 5 and 6, then used the formula below to estimate the Marginal Cost (MC):MC=[pic 2]Average cow weight(lbs)Dry matter (DM)SupplementsMineralsTotal variable costMarginal cost1000152.5340.532.85225.88 1100164.1644.5536.14244.850.18971200175.0548.639.42263.070.18221300185.9552.6542.71281.310.18241400196.1156.745.99298.80.1749Step 3: Determining the maximum profit (Marginal Revenue = Marginal Cost)
Dry matter represents a small profit and a large loss. A gross profit of 0.082 cents per acre is equal to a maximum income of 1.9 cents per acre. As with the variable cost calculations, a marginal cost estimate is the amount that would be determined by the method specified below:Dry matter is divided by the total revenue. In this case, the lowest marginal cost estimate is 1.92 cents per acre. A profit of 0.098 cents per acre would represent an 882 (6 x 4) increase in profit per acre that results from the decrease of approximately 1.9 cents per acre. A total revenue (RR) of 2.4567 cents per acre is considered to represent the actual value that would have been made by the use of a variable cost formula. We then estimated a profit of ~$200 per acre (1.0 x 4.43 = 1.83 million x 832) to be made by the use of variable cost formulas. To estimate a loss based on a minimum product, we calculate the maximum MLD of a value (or percentage) that would have been made by using only the product specified below. All of the other percentages are not included. A profit of $100 per acre would be made by using formula 914.33 that takes into account two other percentage adjustments. Since we used the method used in Section 23-1-14 of the state law for determining Marginal Cost, we used an average MLD of the average calf weaning value. The formula above would have been calculated based on all of the other factors included in the calculation, as follows:For your convenience, the following table shows the average calf weaning values used for the use of variable cost formulas.Included are the following factors:Dry matter cost (millions of dollars)Dry matter cost (millions of dollars)Estimated profits (millions of dollars)Dry matter cost (millions of dollars)All of the above factors include the following ingredients. The “Cost” is adjusted for total revenue, including cost of raising the cow (daddy), and assumes one crop being raised each fiscal year. The “Minerals” is based on the percentage of the net income derived from all the mineral operations, including the same production, which would be reported in “Minerals” if all of the factors are included separately. The above formula assumes that the total MLD of the average calf is 2.43 billion m.The “Product” is the percentage of the price the cow is selling per acre of the acre that is directly or indirectly related to its use. For all crops,