South-Western EconNews

Precision Plowing

Subject

Long-run comparative statics

Topic

Production and costs

Key Words

Technology, costs, markets, prices

News Story

The latest in agricultural technology is a GPS-guided tractor. A receiver on the tractor picks up signals from the Global Positioning System, a satellite-based electronic tracking system used for navigation, and a base station in order to pinpoint the tractor's position to within an inch.

The system allows farmers to plant straight rows of crops close to irrigation lines, and apply fertilizers and chemicals only where they are needed. The driver has only to turn the tractor at the end of each row, then the system takes over. It works day and night, regardless of weather.

Yields should increase as the placing and spacing of rows should be optimized. Costs should decrease as the tractors can run all the time, and water and chemicals are not wasted. These factors help to justify the $50,000 cost of the GPS system. It may also help farmers compete in markets where prices are low, such as in cotton.

(Updated November 1, 2001)

Questions

1.	Draw a diagram with axes showing the number of drivers and tractors used by a farmer. Add an isoquant that shows all the technologically efficient ways of producing a given level of agricultural output. a) What does the slope of the isoquant reflect? Explain your answer. b) How does the introduction of a GPS-guided tractor affect the isoquant? Illustrate on your diagram. Explain why the isoquant changes in the manner you have drawn.
2.	Draw another diagram with the same axes, but this time show an isocost line. a) What does the slope of the isocost line reflect? b) Show what happens when the price of a tractor increases due to the addition of the GPS. Explain why you have drawn the new curve as you have.
3.	Draw a further diagram with the same axes and include the initial isoquant and the first isocost line, such that they are tangent to each other. a) What combination of tractors and drivers would have been employed before GPS-guided tractors were introduced? Illustrate on your diagram and explain why that combination was optimal. b) What combination might have been employed after they were introduced? Show it on your diagram, given the new isoquant and isocost lines.

Source

Barbara Kiviat, "Tractors go high-tech," The Arizona Republic, October 18, 2001.