Definition: Agricultural Production Economics is an applied field of science wherein the principles of choice are applied to the use of capital, labour, land and management resources in the farming industry.

Production economics is concerned with two broad categories of decisions in the production process.

1. How to organize resources in order to maximize the production of a single commodity? i.e, Choice making among various alternative ways of using resources.
2. What combination of different commodities to produce?

Goals of Production Economics

1. To provide guidance to individual farmers in using their resources most efficiently.
2. To facilitate the most efficient use of resources from the stand point of economy.

Subject matter of Agricultural Production Economics

 With a view to optimizing the use of farm resources on an individual farm level and to rationalize the use of resources from a national angle, production economics involves analysis of relationships and principles of rational decisions.

Production Economics is concerned with productivity i.e use and incomes from productive inputs (land, labour, capital and management).

As a study of resource productivity, it deals with

1. a) Resource use efficiency
2. b) Resource combination
3. c) Resource allocation
4. d) Resource management
5. e) Resource administration

Objectives

The main objectives of Agricultural production economics are:

1. To determine and define the conditions which provide for optimum use of resources.
2. To determine the extent to which the existing use of resources deviates from the optimum use.
3. To analyze the factors or forces which are responsible for the existing production pattern and resource use and
4. To explain means and methods for changing existing use of resources to the optimum level.

Basic production problems

The producer or manager is faced with five basic production problems on which they have to make decisions

1. What to Produce?

This problem involves selecting the combination of crops and livestock enterprises to be produced Should the business produce only crops, only livestock or some combination? Which crop or rotations? Which livestock?.

2. How to Produce?

Many agricultural products can be produced in a number of ways. Crops can be produced with more capital and less labour (capital intensive technology) or more labour and less capital (labour intensive technology).

3. How much to Produce?

 A manager is faced with the problems of how much fertilizer and irrigation water to use, seed rates, feeding levels, labour and machinery use etc.

4. When to buy and Sell?

The seasonality of supply conditions in factor and product market results in variations in the prices. The manager must consider these things in determining when to sell or buy.

5. Where to buy and sell?

Farmers generally purchase a number of inputs for a production. Attempt is always to purchase at the least cost. The producer must decide whether to sell in the village market or in the regulated market or other alternative market.