AGRICULTURAL ECONOMICS 



tures until the rent is paid. Should he cease his 

 applications when R units have been employed, 

 the product would just pay the rent and he would 

 lose the cost of the labor and capital-goods, be- 

 sides receiving nothing for his trouble. What- 

 ever he produces by- further applications is the 

 fund which gives rise to the net profits after the 

 wages of hired laborers and the payment for the 

 use of capital-goods have been withdrawn. 



When there is no rent to pay, the farmer seeks 

 the highest average gross return per unit of ex- 

 penditure; but, where a fixed rent must be paid, 

 he no longer seeks the highest average gross re- 

 turn, but the highest average net return per unit, 

 for, under the assumption that, in the production 

 of a given crop, the amount of managerial activity 

 per composite unit of laborers and capital-goods 

 remains the same regardless of the area on which 

 it is expended, the largest net return per composite 

 unit of these factors will enable the farmer to 

 secure the largest net profit per unit of managerial 

 activity put forth, and this is the goal in agricul- 

 tural production when viewed from the stand- 

 point of the farmer. 



The average net return per unit follows the law 

 of increasing and diminishing returns in the same 

 manner as the average gross return ; but, when a 

 fixed rent is paid, the line of increasing average 

 net return starts at point R (Fig. i) ; for all of 

 the product up to point R is required to pay the 



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