METHODS OF CONDUCTING COST STUDIES. 7 



net return; hence this land will rise in price under competitive 

 conditions. Not only is this true but the price of the product is 

 usually a basis for calculating the cost of seed in the process of 

 growing the wheat crop. As the price of the product goes up or 

 down over a period of time land values and labor costs tend to 

 fluctuate accordingly. Thus if the market price of land is determined 

 in part by the price of its products and in part by speculation, and 

 the cost basis is used in determining prices, there becomes operative 

 a pyramiding process that first increases the cost and then the price, 

 with a consequent still higher cost, and still higher corresponding 

 price. 



The variation in farm costs in any product is so wide and the 

 farmer's reaction to losses or low margins of profit so slow that 

 the theory of farmers changing their type of production because of 

 lowered margins of profits is often not substantiated in practice. 

 Many farmers are satisfied with a lower rate of interest than is used 

 in computing the cost. Anticipated increases in land values and 

 the use of the farm as a home are compensating factors that enter 

 into the concrete situation. 



One of the outstanding differences between the methods used in 

 the setting of prices on industrial products and that used in the 

 setting of the price on the farmer's products has been that averages 

 have been used in the case of farm products, while in the case of other 

 commodities individual arrays of costs have been used to arrive at 

 a bulk line or representative cost figure to include most of the pro- 

 duction. 



An expression of farm costs much needed is the array of individual 

 costs per unit of production so as to show causes contributing to 

 variations, and the proportion of the total number of units produced 

 at the various levels of cost. 



The average has not only been misunderstood but has been abused, 

 in that it has been expected to serve a function for which it is not 

 adapted, and hence gives a result which is often misleading and of 

 less value than the frequency groups and ranges of individual costs. 

 The use of the average in the consideration of the relation of farm 

 cost to price has been particularly misleading because, in most 

 instances, a very small percentage of the total production of a given 

 product has been used as a basis of estimating the average cost, and 

 the data secured were interpreted with little knowledge of how the 

 use of the average figure would affect the large number of producers 

 whose costs were above the average. 



BASIC ELEMENTS OF COST. 



Complete farm cost data necessarily deal with quantity require- 

 ments of crops and live stock, such as hours of labor and quantities 

 of feeds and materials that are used in production. Such expressions 



