A landowner has just acquired 400 acres of new land, and is using the Cost-Benef

Question

A landowner has just acquired 400 acres of new land, and is using the Cost-Benefit Principle to decide between three alternative uses for the land: growing corn, growing soybeans, or renting it to a local farmer. If corn is planted, the landowner expects to earn $960 per acre, while soybeans pay only $600 per acre. Renting the land earns the landowner $380 per acre. In addition, the cost of growing and harvesting corn is estimated to be $220,000, while only $96,000 for soybeans. We can assume there are no costs associated with renting the land.

Explanation / Answer

I assume I have to tell the best choice of the farmer.

Case 1) If corn is planted, the landowner expects to earn $960 per acre

Return on 400 acre = 960 x 400 =>384000

The cost of growing and harvesting corn is estimated to be $220,000

Profit = 384000 - 220000 => 164000

Case 2) If soybean is planted, the landowner expects to earn $600 per acre

Return on 400 acre = 600 x 400 => 240,000

The cost of growing and harvesting soybean is estimated to be $96,000

Ptofit = 240,000 - 96,000 = > 144,000

Case 3) Renting the land earns the landowner $380 per acre.

Rent on 400 acre = 380x400 => 152,000

Maximum profit is in growing corn.

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