Agricultural Economics: Key Formulas and Concepts Explained
Farm budgeting, break-even analysis, ROI, and extension methods — all the economics concepts you need to pass the board exam.
Core Economic Principles in Agriculture
1. Law of Diminishing Returns
As you add more of one input (e.g., fertilizer) while other inputs remain fixed, the additional output per unit of input eventually decreases.
Example: Adding 1 bag of fertilizer gives +500 kg yield. Adding a 2nd bag gives +400 kg. Adding a 3rd gives +200 kg.
2. Break-Even Analysis
Break-Even Point = Fixed Costs ÷ (Price per unit − Variable Cost per unit)
Example: Fixed costs = ₱50,000; Price = ₱10/kg; Variable cost = ₱6/kg
Break-even = 50,000 ÷ (10−6) = 12,500 kg
3. Return on Investment (ROI)
ROI = (Net Profit ÷ Total Investment) × 100%
Always calculate gross revenue, then subtract all costs (fixed + variable) to get net profit.
4. Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
Extension Education Methods
Individual Methods
Group Methods
Mass Media Methods
Rogers Adoption Process
Awareness → Interest → Evaluation → Trial → Adoption
Adopter Categories (Rogers)
1. Innovators (2.5%)
2. Early Adopters (13.5%)
3. Early Majority (34%)
4. Late Majority (34%)
5. Laggards (16%)
Key Agricultural Terms
| Term | Definition |
|---|
|------|-----------|
| Fixed costs | Costs that do not change with output (land, equipment) |
| Variable costs | Costs that change with output (seeds, fertilizer, labor) |
| Opportunity cost | Value of the best alternative foregone |
| Comparative advantage | Lower opportunity cost of production vs. trading partners |
| Economies of scale | Decreasing average cost as production increases |
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