Advances in Management and Applied Economics

Producer Surplus as a Measure for Opportunity Cost: The Case of Corn Farming on the Hill of Mount Rinjani Indonesia

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  • Abstract

    Opportunity Cost is a decision making tool to select a more appropriate alternative for a final decision. The usual measure for opportunity cost is farm profit or income. This paper aims at: (1) introducing producer surplus as a measure for opportunity cost; (2) utilizing producer surplus as a determinant in deciding actions that provide the best benefit for farmers. To achieve the above objectives, a research was conducted on 120 units of corn farming on the hills of Mount Rinjani, i.e. in Bebidas Village and PringgabayaUtara Village. Data were collected through face-to-face interviews guided by a structured questionnaire. The study concludes the followings: (1) Producer surplus can be applied as an alternative measure for opportunity cost; (2) If the farmers are expected to leave the corn farming, they need to gain a compensation of IDR 2 million/ha in order to maintain welfare; (3) Producer surplus can also be used as a measure for opportunity cost for any other farms.