142 AGRICULTURAL ECONOMICS 



ascertain the degree of intensity of culture which is most eco- 

 nomical where land has acquired value so that payment must 

 be made for its use. 



When a fixed sum per acre must be paid for its use, land should 

 be cultivated more intensively than when it could be had free. 

 Suppose, for example, that three dollars per acre must be paid 

 for the use of land. We may think of this rent as taking all 

 of the product of the first four and one-half, or R composite 

 units, of the factors applied (Fig. 7). In this discussion we shall 

 speak of that share of the product which is left after paying 

 the rent, as a net return. The farmer may be said to receive 

 no net return from his expenditures until the rent is paid. 

 Should he cease his applications when R units have been em- 

 ployed, the product would just pay the rent and he would lose 

 the cost of the labor and equipment, besides receiving nothing 

 for his trouble. Whatever 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 have been withdrawn.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 expenditure ; but, where a fixed 

 rent must be paid, he no longer seeks the highest average gross 

 return, 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 agricultural 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 increas- 

 ing average net return starts at point R (Fig. 7) ; for all of the 

 product up to point R is required to pay the rent, and the aver- 

 age net return at that point is zero. After the application of five 



