The Difference between Maximum Profit and Maximum Production

The Difference between Maximum Profit and Maximum Production

Nitrogen fertilizer (N) is commonly used as a production input to increase crop yields. It is included as one of the six Testing Ag Performance Solutions (UNL TAPS) program decision choices and contributes much to productivity as well as costs. Its use, however, is not without controversy. The over-application of N gets into the groundwater and nearby waterways becoming a pollutant. Excessive use does little or nothing to increase revenue but can inflate costs, thereby reducing profit.

For these reasons and others, using the right amount of N has become a popular and important topic among those that use and/or study it. The main problem in using this nutrient is determining the right amount to use and apply. Like many natural processes, at some usage level N exhibits a diminishing marginal effect that is, at a specific level of use the next added unit returns less than the previously applied unit.

In this week's Cornhusker Economics Nebraska Extension Agricultural Economist Matt Stockton looks at corn yield response to N and provides an economic analysis of N application. Using data from the UNL TAPS trials and considering three factors — the biological relationship of N to corn grain yield, N costs, and the value of the grain being sold  — Stockton analyzes the data and explores how to determine the economically optimal quantity of N for individual fields.

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Graph of corn yield response to nitrogen fertilizer, based on data from the UNL-TAPS trials
Figure 1. Estimated 2018 UNL TAPS corn yield response to varying levels of N.