Chap 11-1

CHAPTER 11

SAMPLE TEST QUESTIONS- MULTIPLE CHOICE

1. In whole farm planning it is assumed that when _____________________ is maximized, total

profit is maximized
a. profit per unit
b. gross margin per unit
c. total gross margin
d. total gross income

2. If an acre of alfalfa requires $75 of operating capital and 5 hours of labor, and a farm has 70
acres of land, 400 hours of labor, and $4,500 of operating capital available, the maximum
acres of alfalfa that can be grown is:
a. 50
b. 60
c. 70
d. 80

3. When developing a whole farm plan and no more enterprises can be added because one
resource is exhausted, it may still be possible to increase gross margin by replacing one
enterprise with another enterprise that has a higher gross margin per:
a. acre
b. bushel
c. unit of excess resource
d. unit of limiting resource

4. An advantage of linear programming is:

a. it uses only simple math
b. it can quickly analyze a large number of activities and resources
c. contains built-in default data
d. it requires very little data

5. Farming systems analysis takes into account:

a. interactions among different enterprises
b. possible variations in key values such as selling prices
c. different types of production technology
d. specialized labor needs

6. Sensitivity analysis looks at the change in total profit caused by:

a. a change in selling prices
b. a change in yields
c. a change in the price of a key input
d. any of the above
7. The purpose of liquidity analysis is to estimate if:
a. the supply of labor will be sufficient to carry out the plan
b. the supply of irrigation water will be sufficient
 Chap 11-2
c. cash inflows will be sufficient to meet expected cash outflows
d. net farm income will be positive or negative

8. When comparing several long-range whole-farm budgets with different quantities of major
fixed resources such as owned land or permanent labor, the prices used to estimate gross
income should be:
a. current prices on the date the budget is made
b. prices expected when this year's products are sold
c. average prices from the previous year
d. expected average prices over the next several years

9. A whole-farm budget contains:

a. costs, returns, and resource needs for a specific set of enterprises
b. costs and returns that would be affected by a specific management change
c. projected costs and returns for one unit of a specific enterprise
d. the actual costs and returns that were realized during one year for all the enterprises on a
farm

10. "Technical coefficients" for whole-farm planning refer to:

a. the estimated gross margin for one unit of each enterprise being considered
b. the quantity of each resource that is available
c. the quantities of resources needed to produce one unit of each enterprise being
considered
d. the total quantity of each resource needed for a given farm plan

11. In linear programming to maximize farm profits, "reduced cost" tells you:
a. the amount profit would increase if the operator could produce one more unit of an
enterprise
b. the amount profit would decrease if the operator produces a unit of an enterprise
not currently in the linear programming solution
c. the amount profit would increase if the operator had one more unit of a limited resource
d. none of the above

12. In linear programming to maximize farm profits, "shadow price" tells you:
a. the amount profit would increase if the operator could produce one more unit of an
enterprise
b. the amount profit would decrease if the operator produce a unit of an enterprise not
currently in the linear programming solution
c. the amount profit would increase if the operator had one more unit of a limited
resource
d. none of the above

SAMPLE TEST QUESTIONS-TRUE/FALSE

 Chap 11-3
T F 1. When developing a whole-farm plan the inventory of resources should include
labor and management skills as well as physical resources.

T F 2. Farms that carry out the same type and scale of enterprise year after year do not
need to develop a whole-farm budget.

T F 3. In whole-farm budgeting only gross margin is multiplied by the number of units

of each enterprise because fixed costs are assumed to be constant when the
number of units of an enterprise change.

T F 4. Principal payments on noncurrent debts are needed for analyzing profitability, but
not liquidity.

T F 5. Sensitivity analysis in whole-farm budgeting looks at how net income and cash
flow would be affected by changes in key prices or production rates.

T F 6. Crop and livestock inventories held over from last year can be ignored when
doing a long-run budget.

T F 7. Changing from one whole-farm plan to another may require several transitional
years in which net income and cash flow are different than in a typical year.

T F 8. Linear programming assumes that resource requirements per unit of an

enterprise increase as more units of the enterprise are carried out.

T F 9. The shadow price or dual value for a resource in a linear programming solution
shows how much total costs would increase if one more unit of the resource
were available.

T F 10.One way that goals other than profit maximization can be included in whole farm
planning is by restricting the types of enterprises considered.

T F 11. The first step in whole farm planning is to prepare the whole farm budget.

T F 12.In linear programming, all the constraints and the objective function are linear.

T F 13.If an enterprise appears at a non-zero level in an LP solution, then the reduced

cost for that enterprise must also be non-zero.

T F 14.If a resource in a linear programming formulation is not used up entirely by the

selected activities, then the shadow price on the resource constraint will be zero.
T F 15. If the shadow price on a labor constraint in linear programming is $40.00 (per
hour) and labor can be hired for $10 per hour, profits would be increased by
hiring more labor.
T F 16. If reduced cost on the corn activity in a linear programming model is $-30, that
means that each acre of corn planted increases profits by $30.
Chap 11-4