Suppose that you own a 10-acre plot of land that you would like to rent out to f

Question

Suppose that you own a 10-acre plot of land that you would like to rent out to farmers. For them, bringing in harvest involves $30 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 bushel of wheat per acre. If the price at which wheat can be sold is $5 per bushel and if farmers want to earn a normal profit of $10 per acre, what is the most that any farmers would pay to rent 10 Acres? what if the price of wheat rose to $ 6 per bushel?

Explanation / Answer

Total cost per acre = 35 + 80 + 70 = $185 Revenue from wheat per acre = 40 x 5 = $200 Contribution per acre = $200 - 185 = $15 The most that farmer would pay to rent 20 acre is 20 x (15 - 10) = $100 If the price of whear rose to $6, the most that farmer would pay = 20 x (240-185-10) = $900

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