23 



Using conventional interest rates 8/ for the area, the fixed interest cost 

 per acre of hay meadow is: 



Land $150.00 x .05 = $7.50 



Machinery 16.50 x .06 = .99 



Total $8.49 



For an operator who is in debt, interest is a fixed cash cost. For an opera- 

 tor who is free of debt, interest is an opportunity cost. That is, if the latter 

 had not invested his money in land and naachinery, he could receive interest 

 by loaning the money. 



A part of the depreciation and interest on the investment in such fixed- 

 cost items as houses for hired labor and machine sheds were included in the 

 costs of producing hay. 



The other fixed cost, taxes, varied considerably among areas in Colorado. 

 In 1957, real estate taxes paid per acre of meadowland and its share of the 

 ranch improvements varied from $1.31 to $4.41 per acre. Taxes per acre of 

 meadowland averaged $2.00 for those ranches surveyed. 



Fixed costs chargeable against hay production on typical mountain 

 meadow ranch with 200 acres of hay meadow total $3,135.00 or $15.68 per 

 acre annually (table 8). These costs remain nearly constant whether the 

 meadow produces 1 ton of hay per acre or 2. If production per acre could be 

 doubled, the fixed per acre cost would be divided among twice as many tons 

 of hay. To the operator, this means that even if it cost $15.86 to double his 

 production, it would be justified because 1 acre would produce the same 

 tonnage that two produced. 



Variable Costs 



Variable costs associated with production of hay include such items as 

 machinery repair, gas and oil, labor, and twine. Costs of fertilizer and 

 other improved management practices are not included in this section, even 

 though they are variable costs. They are analyzed later. Included here are 

 only the variable costs that result from changes in production not those that 

 cause changes in production. 



8/ Most ranchers pay 5-percent interest on their real-estate mortgages, 

 but 6 -percent interest for operating capital and for money used in buying 

 machinery. These are the rates used in this analysis. 



