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Farmers Stick Neck Out and Raise Alpacas
Subject Costs, revenue and profit
Topic Profit Maximization and the Firm
Key Words Owners, quality, sell, cost, importing, resale, fees
News Story

Alpacas were once a curiosity seen virtually only in a zoo. Times have changed. They are now being farmed for their wool. In 1990 there were 1,330 registered alpacas; in July 2000 there were 29,856. the number of owners has expanded from 146 in 1991 to 2,919 today. Alpacas are "easy keepers', being well-mannered and requiring minimal food, water, shelter, and care. Their hardiness results from their ancestry in the Andes mountains. They live 15 to 25 years.

Alpaca fleeces are silky, durable, insulative, and water-resistant. They may be used to make sweaters, for example. Fleece sells for $2 to $8 an ounce, depending on color and quality. Each alpaca produces five to eight pounds of fleece a year. A sweater requires about a pound of wool. It may sell for $400 although the yarn may cost only $40 and the labor $100.

Since alpacas reproduce at a slow rate and importing is tightly restricted, some herd owners breed alpacas for resale. Females yield $12,500 to $40,000, while herd sires have sold for as much as $165,000. Stud fees can be $2,000 to $5,000 for prize bulls. Some farmers are vertically integrated - they breed alpacas, farm their wool, and make alpaca clothes.

(Updated September 1, 2000)

Questions

1. On alpaca farms, what are the

a) fixed costs?
b) variable costs?

2.

a) Why might it be beneficial to add more and more alpacas to a given amount of farmland?
b) At what point might it not be beneficial?

3 What is the typical annual revenue from one alpaca raised for its wool? State any assumptions that you make.
4. If you were a profit-maximizing farmer, how would you decide whether to add another alpaca to your herd?

Source Glenn Collins, "Soft, Gentle, Cute, Lucrative and New on the Farm," The New York Times, August 11, 2000.

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