Page 11 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.70, # 1, 2013, pp. 4-22

from the Total Cost functions. Equating MFC to MVP will get the optimal levels

of corn yield under a range of corn price and natural gas price.

Production cost

Production cost is comprised of fixed cost and variable cost. Fixed cost is not

dependent on the level of input applied or the output produced. Since this study

focuses on the yield-water response relations, the variable costs other than

irrigation are assumed to be fixed. Since all irrigation in this region depends on

groundwater, the variable cost associated with irrigation is limited to pumping and

application cost. Therefore, the variable cost associated with the level of irrigation

is made up of the fuel cost; cost of lubrication, maintenance, and repairs; labor

costs; and annual investment costs (Equation 1) (Almas et al. 2000)

TC= FC + (FULC + LMR + LC + AIC)*W (1)

Where:

TC is the total production cost,

FC is the fixed cost associated with the inputs at constant levels,

FULC is the fuel cost per acre inch of water,

LMR is the cost of lubrication, maintenance and repairs,

LC is labor cost per acre inch of water,

AIC is annual investment cost per acre inch of water, and

W is the amount of water available to meet ET requirements.

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