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 
