Suppose that you own a 10-acre plot of land that you would like to rent out to w
ID: 1125102 • Letter: S
Question
Suppose that you own a 10-acre plot of land that you would like to rent out to wheat farmers. For them, bringing in a harvest involves $35 per acre for seed, $80 per acre for fertilizer, and $70 per acre for equipment rentals and labor. With these inputs, the land will yield 40 bushels of wheat per acre. Now suppose the price at which wheat can be sold is $6 per bushel and that farmers want to earn a normal profit of $10 per acre. Instructions: Enter your answers as whole numbers. What is the most that any farmer would pay to rent your 10 acres? What if the price of wheat rose to $7 per bushel?
Explanation / Answer
Total cost per acre = 35 + 80 + 70 = $185
Revenue from wheat per acre = 40 x 6 = $240
Contribution per acre = $240 - 185 = $55
The most that farmer would pay to rent 10 acre is 10 x (55 - 10) = $450
If the price of whear rose to $7, the most that farmer would pay = 10 x (280-185-10) = $850
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