Test Bank for The Economics of Farm Management A

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Test Bank for The Economics of Farm Management A Global Perspective, 2e by Kent Olson, John Westra (All Chapters)

Chapter 1. Managing the Farm in an Integrated World Economy

True and False

• False Managing a farm is a simple task.
• True Advances in technology and communication have increased the connections

between farmers and global markets.

• True Higher oil prices have created opportunities in biofuel production.
• False Society’s concern over how farmers treat the environment and animals have

created threats for farmers but no opportunities.

• True Farming today is different from farming even just 10 years ago.

Multiple Choice

• Which of the following are affecting farming now and into the future?
• Climate change
• Societal concerns
• Environmental concerns
• All of the above

• Society’s concern for the environment is which of the following?
• Threat
• Opportunity
• Both

• Which of the following will a successful manager in the future have to have?
• External focus
• Internal focus
• Both

Short Answer and Problems

• Why will a successful manager in the future have to have both an external focus and an

internal focus?

Students will choose different words but should include the idea that farmers will need to manage their farms well (the internal focus) but also have to monitor events and issues beyond the farm in policy, society, and other countries in order to know what may be affecting them in 1 / 4

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the future. If they are not aware of what is happening beyond the farm and fail to adjust to those changes, the changes will come to the farm in ways the farm will not like.

• How has the producer of a commodity (such as wheat, beef, maize, and so on) been affected

by an increasingly global market?

Student answers will vary, but they should grasp the idea that being closer to the global market has potential for both positive and negative impacts on the producer. And a complete answer will include the impacts of policy changes in other countries. These policies may be directly affecting agriculture (e.g., subsidies) or not related to agriculture (e.g., financial regulations). An example of a negative impact would be a drop in oil prices causing ethanol prices to drop and thus lowering the profit opportunity for farmers. Of course, the opposite can happen too: higher oil prices mean higher ethanol prices mean greater opportunity for farmers.A positive example is that income growth in China leads to a growing demand for grains and meat in China.

• How have the opportunities presented by local markets affected farming?

Answers will vary. Answers should include the potential opportunities for new, direct markets but also the likely need to change products, production practices, and marketing procedures. A farmer producing for local markets will have to realize they are much closer to the consumer and thus need to be much more responsive to the consumers’ needs and wants.

• Describe some examples of threats and opportunities a farm may face due to increasing

global connectivity.

General answers may include the threat of greater volatility in prices and volume; the opportunity of being able to find new customers due to having lower prices, better quality, or both; the threat of current customers switching to other producers due to their lower costs, better quality, or both; and the opportunity of accessing new supplies of inputs. Specific answers are also good and may include examples such as increased soybean production of soybeans in Brazil, greater impacts of fluctuations in production in other countries, changes in international trading rules, and so on. Another example is a potential threat resulting from the positive of quicker delivery times; this quicker delivery can cause businesses to have lower inventories which may not be sufficient if a major problem such as natural weather disasters or another major disruption were to occur.

• Is society’s concern over how farmers treat the environment and animals a threat or an

opportunity? Why?

It is a threat for some farmers because it may make them change their production methods in ways that increase their costs and thus reduce their margins. It is also an opportunity for other producers who can make the adjustments and meet the requirements of new products and new markets. These producers will be able to adjust to new expectations and still produce and market profitably the “same” product but under different production rules. 2 / 4

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Chapter 2. Management

True and False

• True Farm management is the allocation, direction, and control of limited resources to

achieve the goals of the farm and farm family.

• True People have many goals that may conflict with each other, so tradeoffs may need

to be made between goals.

• False Technology that affects farmers involves only machines and computers.
• True The four broad functions of management are: planning, organizing, directing,

controlling.

• False Once plans are made and production started, a farmer does not need to consider

control management because events always happen as planned.

• True Farmers are general managers, not plant managers.
• True Decision making is often shown as a linear process, but in reality it involves many

iterative steps and feedback loops to earlier steps.

• False The three types of decisions are analysis, management, and dictatorial.

Multiple Choice

9. The four broad functions of management are:

• Planning, organizing, directing, accounting
• Planning, implementing, buying, checking
• Studying, decision making, checking the markets, accounting
• Planning, organizing, directing, controlling

• A farmer is
• A marketing manager
• A general manager
• A production manager
• A labor manager
• A finance manager

Short Answer and Problems

• Describe farm management in your own words.

The answer to this question will vary but should include a broader view than just making a profit, just production, or just living on a farm. At a minimum, a complete description would include the realization of multiple goals, resource constraints, and, thus, decision making. One student described it this way: Problem solving, human resources, multi-tasking, organization, and just about anything and everything else needed for a farm to run properly. It too is correct.

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• Why are farmers general managers, not plant managers?

Farmers are general managers because they are responsible for all the management functions, not just production.

• Is profit maximization the only goal of farmers? If it isn’t the only goal, what are five other,

common goals that farmers may have?

No, profit maximization is not the only goal of farmers. Some may have it as a very prominent goal but have other goals as well. Other goals listed by students but certainly not limited to this list include net worth accumulation, retirement income, land ownership, high crop yield and animal productivity (milk per cow, for example), large herds, winning yield contests, new machinery, vacation time, family time, passing the farm to the next generation, and so on.

• Do a person’s goals change over time? Why can two generations have different goals?

Yes, a person’s goals do change over time because we have different needs at different ages. Our goals may change slowly so changes over decades may be easier to observe than annual changes. Two generations of even the same family can have different goals because of differences in age and stage of life. A young person may want to work hard and be willing to take on more debt in order to accumulate both net worth and income. The young person’s parents are at a later stage of life and may be looking more at retirement than at business growth; they may not be so willing to go into debt and work hard especially if they did so earlier in life and have increased their net worth. Being closer to retirement may make people less risk averse and thus less willing to take chances that could hurt their retirement income and lifestyle.Different generations have different perspectives on life. Younger generations are more apt to change with changing technology while older generations see that if it worked thus far, it will still work, they are less apt to change just to avoid the change itself.

• Describe and contrast the four functions of management: planning, organizing, directing, and

controlling.

Planning is the determination of the intended strategy and the details of day to day plans.Organizing involves the acquisition and organization of the resources needed for the plan.Directing involves the coordination of the resources to implement the chosen plan. Controlling involves comparing the actual results with the initial goals and objectives and then taking corrective actions, if needed.Each function leads to a solution from the beginning. You plan, organize, get it going, and then compare the results to the starting statistics. Doing this allows you to know if your original plan was the correct one to make. Each is different from the other, but they all build onto one another.

• How would you describe an effective farm manager? How would you know whether a

manager was effective?

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