Fred Schmedt illustrates a useful application of the concept of operating leverage in an agricultural context for the Samuel Robert Nobel Foundation (http://www.noble.org/AG/Economics/OperatingLeverage/index.html). He compares the costs of raising cows on a native range (involving fences, horses, employees and other fixed costs to maintain the cattle on the range) versus a stocker approach (in which the livestock are bred in a confined space, requiring higher variable expenses for feed and other costs).

Required:

Explain how the concept of operating leverage applies in the cattle raising case illustrated by Fred Schmedt. Which approach has the higher operating leverage and why? As a rancher, how would you choose among these approaches?