Introduction
Tour Itinerary
Destinations
Small Farm 1
Small Farm 2
Commercial Farm
Non Trad' Farm
Issues
Theories
Pov'ty Indicators
Commodities
Poverty
Econ. of Scale(1)
Income Elasticity
Infant Industries
Commodity Mkts
Econ. of Scale(2)
Lorenz Curve
Malthus
Measuring Pov'ty
Perf. Competition
Cycle of Poverty
Price Ceilings
Prod. Subsidies
Coffee Mkt.
Living Standards
Worksheets
Resources

Home Field Trips Rural Life and Agriculture Tour Economies of Scale and Commercial Farming

Theories

Economies of Scale and Commercial Farming

Next theory - Income Elasticity of Demand >>

Small farms in Zambia are often just producing enough for the needs of the household with perhaps some surplus cash crops. This small-scale production does not allow them to benefit from economies of scale.

Larger commercial farms, however, can produce on a much larger scale and will often be able to benefit from economies of scale. Economies of scale occur when the average cost of producing a larger quantity is lower than the average cost of a smaller quantity. This can be seen on the long-run average cost (LRAC) curve below:

The LRAC curve is often drawn U-shaped (though in practice will vary) to show that initially there may be economies of scale which reduce the cost per unit. Subsequently there may be constant returns to scale where the cost per unit remains the same and eventually the cost per unit may begin to rise as diseconomies of scale set in. In practice, larger commercial Zambian farms are unlikely to suffer from diseconomies of scale and will simply benefit from the economies of scale shown by the first section of the curve.

Next theory - Income Elasticity of Demand >>