The Effect of Short-run Changes in Output on Costs 



Average costs were derived for several different levels of output for 

 each hatchery.' The output levels are 40, 60, 80 and 95 percent of capa- 

 citv. Because of the hiological nature of the hatching process no opera- 

 tions in excess of 100 percent are considered. The short-run average 

 cost curves are illustrated in Figure 1. 



Analysis of the average cost curves reveals the effect of a given 

 change in output on average cost. Reductions in output cause average 

 cost to increase for each model since the overhead or fixed costs are 

 spread over a smaller numher of chicks, and some efficiency of operation 

 is lost. However, a given percentage reduction in output from some 

 given operating level does not have the same effect on average cost for 

 all hatcheries. For example, reducing output to 60 percent from 100 

 percent of capacity results in smaller percentage increases in cost for 

 each successively larger size hatchery. The average cost per chick in- 

 creases from 2.005 cents to 3.068 cents for hatchery A, an increase of 52 

 percent, but the average cost increases from 0.968 cents to 1.275 cents 

 for hatchery H, an increase of only 32 percent. 



Economies of Scale 



A line connecting the 100 percent of capacity points on the short- 

 run average cost curves is known as the economies of scale curve or long- 

 run average cost curve. The curve for the eight model broiler chick 

 hatcheries is illustrated in Figure 1. 



Economies of scale exist throughout the range of hatchery sizes 

 considered. The chick cost decreases rapidly as capacity increases up to 

 a hatchery size of approximately 700,000 eggs with an annual output of 

 7.5 million chicks. Further increases in scale result in minor decreases 

 in chick cost. 



Although the differences in the average cost per chick are extremely 

 small between large scale hatcheries, the annual difference in aggregate 

 costs would ])e large. For example, hatching 21,710,000 chicks in a hatch- 

 ery with 2,029,500 egg capacity would cost $210,153. However, the same 

 output hatched in two hatcheries with egg capacities of 1,014,800 each 

 would cost $223,666, a difference of $13,513. 



IV. Chick Distribution and Costs 



Procedure 



The procedure for analysing an integrated poultry system's broiler 

 assembly and chick distriJ)ution was originally developed and applied to 

 an analysis of live broiler assemlily^. That particular study established 

 the metliods, physical characteristics, and assumptions for all subsequent 



"* See Appendix B for the average costs per chick for eight hatcheries operating 

 at several output levels. 



1 Henry and Burbee, op. cit. 



27 



