Suppose that you own a 20-acre plot of land that you would like to rent out to w

Question

Suppose that you own a 20-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.

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 farmer would pay to rent your 20 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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