Question

You are considering decreasing your wheat production by 50 acres and planting 50 more acres of potatoes. You have decided to use a partial budget to make your decision. Fill in each box with an example or description of what should be included and answer the questions below. Additional Revenue Reduced Revenue Reduced Costs Additional Costs

Additional Revenue	Reduced Revenue
Reduced Costs	Additional Costs

What costs would not need to be considered in this partial budget?

How would you make the decision?

Answer 1

You are considering decreasing your wheat production by 50 acres and planting 50 more acres of potatoes. You have decided to use a partial budget to make your decision. Since here we are not given any actual numbers, so we can take the hypothetical numbers as an example to understand the situation. So

Additional Revenue = $600,000 and

Additional Cost = $200,000

Reduced cost = $250,000

Reduced Revenue = $500,000

Here, in this partial budget we need not consider the fixed cost of production like the cost (rent) of land used and the cost of equipments. This is becausr there is no change in these inputs as it remains the same and will be used as before.

We can make the decision of substituting Wheat for Potatoes by considering the overall increase or decrease in the profit. In the above example we can see that the cost had decreased by $50,000 (250,000-200,000) and the Revenue has increased by $100,000 (600,000-500,000). So the overall increase in profit = 100,000+50,000 = $150,000. Since here the overall profit is increasing so we will take this decision.