2 BULLETIN MS, U. S. DEPARTMENT OF AGRICULTURE. 



When it was shown that cost studies invariably bring out a wide 

 range of costs instead of a single definite cost figure, the average 

 was suggested as the representative cost figure, and often so used. 

 Continued studies of the cost of producing farm products have 

 indicated, however, that the average does not serve the purpose. 

 It has been found that if prices merely equaled the average cost 

 there would result anything but an inspiring standard, since the 

 average usualty tends to divide the producers into two groups of 

 about equal size, one of which is producing at a cost above the aver- 

 age and the other at a cost below the average. 



To be of any great significance, cost figures must be presented in 

 terms of the ranges that exist in the final cost per unit of product 

 and in the various elements of cost. The variations in the cost 

 per unit of product in any representative farming area are so marked 

 that they should be considered in any use of cost figures. 



The Office of Farm Management and Farm Economics aims to 

 present cost figures so that a complete picture of the range of indi- 

 vidual costs can be obtained at a glance. From the presentation of 

 the range of costs of farm products, it would appear that usually 

 from 40 to 50 per cent of the production is at costs above the average. 

 For this reason it is believed that, in order to stimulate adequate 

 production through a period of years, the price at which the crop 

 is sold will need to be appreciably above the average cost. It 

 follows that the cost that will cover the "bulk" of the production 

 of a given product is the figure that approximates what the price 

 should be to maintain the industry. This consideration has led to 

 the development of the " bulk-line" theory, which has recently 

 assumed an important place in the discussion of the relation of 

 production costs to price. The "bulk-line" theory is a modification 

 and an attempt at practical application of the "marginal cost" or 

 "greatest cost" theory of the relation of cost and price. In practice, 

 the "bulk line" has sometimes been drawn to include 85 per cent 

 of the production, but this is merely a tentative and more or less 

 arbitrary figure. In reality the position of the "bulk line" varies 

 with different commodities and from time to time, according to the 

 alertness with which farmers adjust their production to market 

 conditions. The "bulk-line" cost corresponds to the long-time 

 average price which is essential, one year with another, to stimulate 

 the production of that quantity of product which the market de- 

 mands. What this "bulk-line" cost will be depends upon a number 

 of factors, including the rate the farmer must pay for land, labor, 

 and capital, and the standard of living which farmers, as a class, 

 insist upon if they are to remain on the farm. 



