2ECONOMIC PRINCIPLE
Part a:
Dairy forms mainly cultivate cattle and other live stocks for milk, and they processes
those milk and sell it to the market. Therefore, the main source of the revenue is the selling of
milk products and the main input costs are related to the cultivation of cattle and processing
of milk. The costs structure of the dairy farm can be well analysed and classified into two
categories, one is the variable costs and the other is the fixed costs (Webster 2014).
Variable costs are those which are required for the production and it directly varies
with the production volume. It implies, if the volume of output increases then the variable
cost also increases and if the volume of output decreases then the variable cost also decreases.
Therefore, variable costs for the Maleny Dairies would be those expenses which directly vary
with the production of milk and milk products. Some examples of such variable costs for the
Maleny Dairies are the cost of seeds, lime, fertilizers, herbicides, diesel fuel and so on.
On the other hand, fixed costs are those expenses which do not vary with respect to
the change in volume of output. In short run it remains constant irrespective of change in
volume of output. It is the long run commitment of a business that the organisation must
recover in long run to make a profit. Some examples of fixed costs for the Maleny Dairies are
Rent, Depreciation of equipments, Insurance and taxes (Webster 2014).
Part b:
Hoppers’ invested $2.5 million in their dairy farm Maleny Dairies recently to upgrade
their processing plant. They have introduced two robots for stacking crates. Investment in
robots and other up gradation of the plant with an objective of automation of their
manufacturing process would result in costs savings mainly in variable costs. It can be
observed from the given case study that, use of such robots for crate stacking would result

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Assignment On Economic Principle -1

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