Farmer making decisions: Farmers have many alternative uses of their resources. A farmer cannot employ his resources in all possible uses at the same time. For example, a person can sell his labor to produce a commodity or keep it leisurely. At the same, it is not possible to have both money income and leisure from the use of the same labor. A piece of land can be used for wheat, paddy, onion, garlic, etc. But all enterprises like wheat, paddy, onion, garlic, etc., cannot be produced simultaneously in a piece of land.

Farmer making decisions

Five major economic decisions must be made by a producer.

  • What to produce
  • What method of production to use
  • How much of each commodity to produce
  • When to buy and sell
  • Where to buy and sell

1. What to produce

There are many possible commodities that a farmer can produce. He must choose based on preference among the alternative commodities. Suppose a commodity A and B can be produced in a piece of land. But it is not possible to produce both A and B at the same time. A choice must be made whether to produce A or B.

2. What method of production to use

There are many possible ways to produce a commodity. A producer must choose a method by evaluating all possible methods for producing a commodity. The method of production affects the cost of production. Producers always seek the least-cost method of production.

3. How much to produce

There are many possible levels of output of a commodity. A farmer must decide on the quantity of the commodity. He will not produce more than he will expect to sell for a profit. On the other hand, he will increase production when he expects to increase profits by doing so.

4. When to buy and sell

The amount and quality of a commodity vary over time, and side-by-side, the commodity price is also varied. Farmers will buy inputs for producing a commodity when its price will be low. On the other hand, farmers will sell their produced commodity when its price is high.

5. Where to buy and sell

Farmers have alternative markets for selling their commodities. Frequently, prices vary from one market to another. Transportation costs to the markets are also different. Markets must be chosen where a producer will receive fewer transportation costs and more profits.

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