Cultivator has limited capital and his main objective is to maximise net profit. He is having several alternatives for investing this amount. He should spend the amount, in such a way that he will get maximum profit. This can be achieved by using the principle of equimarginal returns. This principle can be illustrated with the help of following example. Suppose, farmer is having Rs.50,000 for investing. His locality is favourable to take crop enterprise, dairy enterprise and poultry enterprise.

It is observed from the table that, when all the amount was invested in any one enterprise net profit from crop enterprise, dairy enterprise and poultry enterprise is obtained as Rs. 26,000, Rs.22,000, and Rs. 28,000 respectively. However, if the same amount is spent according to principle of equimarginal returns, total net profit will be as shown below in the table given below

Table: Marginal return to capital on three enterprises

	Amount of capital used in Rs.	Marginal Return in Rs.
		Crop	Dairy	Poultry
First	10000	20000	19000	21000
Second	10000	19000	18000	19000
Third	10000	15000	15000	15000
Fourth	10000	12000	11000	12000
Fifth	10000	10000	9000	11000
Total returns from Rs.	50000	76000	72000	78000
Net profit Rs.		26000	22000	28000

Table: Expenditure according to principle of equimarginal return

	Amount	Enterprise	Marginal Return
First	10000	Poultry	21000
Second	10000	Crop	20000
Third	10000	Crop	19000
Fourth	10000	Dairy	19000
Fifth	10000	Poultry	19000
Total	50,000		98000
Net Profit			48000

It is observed from the above table that cultivator is getting total net profit of Rs. 48000 which is more than profit from any single enterprise. Thus, for maximum net profit cultivator should invest Rs.20000 in crop enterprise, Rs.20000 in poultry enterprise and Rs. 10000 in dairy enterprise.

It is observed from the above table that marginal returns from all the three enterprises are equal i.e. Rs.1900. Thus, it can be stated that amount should be invested in such a way that marginal returns should be in all the alternatives.

Opportunity Cost:
In agriculture, resources are limited and have alternative uses. When resource is put to one use opportunities of other alternatives are lost. Opportunity cost refers to the value of the next best alternative foregone. It can be explained from example, which is given in table. First 1000 was invested in poultry losing Rs.20000 from crop enterprises as a next best alternative to first 10000. Another example, Cultivator is getting Rs.300 by spending Rs.100 for feeding poultry feed to poultry birds. If he spent same Rs.100 for feeding concentrates to dairy cows he will get additional Rs.200. Now, cultivator will forgo Rs.200 and will spend Rs.1000 for poultry feed and will obtain Rs.300. Thus, opportunity cost of feeding poultry birds and obtaining Rs. 300 or spending Rs.100 for poultry is Rs.200.