OBAFEMI AWOLOWO UNIVERSITY
Department of Agricultural Economics
AEC 402: Farm Management
Practical Assignment: Application of Linear Programming in Farm
Planning
Submission Period
Three (3) Weeks
Total Marks
30 Marks
Background
OAU teaching and Research Farm has 20 hectares of cultivable land and
intends to allocate resources among maize, cassava, and vegetable
production during the coming production season. The farm aims to maximize
gross margin subject to available resources. The arable unit was late in
getting cowpea planted and early dry weather hit the crop before the crop
had matured. The harvest costs are ₦40,000 per acre and the revenues
would be ₦60,000 per acre if harvested. Before the crisis, ₦106, 000 per acre
was invested in operating expenses. Kindly advise the Unit on what he/she
should do.
The project can produce 300 cwt. of potatoes per acre using 500 pounds of
fertilizer. With the application of 600 pounds of fertilizer, the farmer can
produce 320 cwt.; at 700 pounds, 330 cwt. are produced; at 800 pounds,
production goes to 335 cwt.; and at 900 pounds, 340 cwt. are produced.
Assume that fertilizer can be added only in 100-pound increments. If
potatoes sell for ₦3 per cwt. and fertilizer costs ₦14 per hundred pounds,
how many pounds of fertilizer should be applied per acre to maximize net
income?
The available resources and enterprise budgets are shown below:
Resource/Enterprise Maize Cassava Vegetables
Gross Margin (₦/ha) 180,000 250,000 350,000
Land Required (ha) 1 1 1
Labour Required (man-days/ha) 30 45 60
Capital Required (₦/ha) 120,000 180,000 250,000
Available Resources
Total land available = 20 hectares
Total labour available = 800 man-days
Total operating capital available = ₦3,500,000
At least 4 hectares must be allocated to cassava for household food
security.
Vegetable production should not exceed 6 hectares because of
irrigation limitations.
Tasks
Question 1: Model Formulation (10 Marks)
a. Define the decision variables.
b. Formulate the objective function for maximizing gross margin.
c. Develop all relevant constraints.
d. State the non-negativity conditions.
Question 2: Model Solution (10 Marks)
Using either:
Microsoft Excel Solver,
LINDO,
LINGO,
GAMS, or
Any other optimization software,
solve the linear programming problem and determine:
i. The optimal enterprise combination.
ii. The maximum gross margin obtainable.
iii. The amount of each resource utilized.
iv. The amount of unused resources (if any).
Question 3: Sensitivity and Interpretation (10 Marks)
a. Interpret the optimal solution obtained.
b. Identify the binding and non-binding constraints.
c. Explain the economic meaning of shadow prices (dual values) obtained
from the solution.
d. Suppose available land increases from 20 ha to 25 ha. Discuss the likely
effect on the optimal farm plan.
e. Suggest management recommendations for the farmer based on the
results.
Report Format
The report should contain:
1. Title Page
2. Introduction (Maximum 1 page)
3. Model Specification
4. Data and Assumptions
5. Results
6. Discussion
7. Conclusion and Recommendations
8. Appendix (Solver output)
Submission Guidelines
Length: 5–8 pages excluding appendices.
Font: Times New Roman, Size 12.
Line spacing: 1.5.
Submission: Hard copy and soft copy (PDF).
Due Date: Three weeks from the date of assignment.
Learning Outcomes
At the end of this assignment, students should be able to:
Formulate farm planning problems as linear programming models.
Apply optimization techniques in agricultural decision-making.
Interpret LP results for farm management purposes.
Recommend efficient resource allocation strategies for farm
enterprises.