Assume you have a fixed amount of pasture. The table below shows the relationshi

Question

Assume you have a fixed amount of pasture. The table below shows the relationship between the number of cows run on the pasture and the amount of beef produced. Complete the table using the following information: Total fixed costs = $20,000, variable cost of $180 per cow, and a beef price of $90.00 per cwt. For questions 1 – 3 assume you do not own the pasture but are only making a study to determine if you could make a profit if you should purchase it. 1. Are you in the short run or long run with respect to the pasture? Ans. ____ _____________ 2. What is the lowest beef price which would make purchasing the pasture and producing beef a breakeven deal? (i.e., the price would have to be higher than this value before you would have a profit.) Ans.___ ______________ a) How many cows would you want at this price? Ans.___ _______________ b) What would your profit or loss be? Ans.______ ______________ 3. Assuming a $90.00 beef price as given, would you purchase the pasture to raise beef? WHY? For the remaining questions, assume you already own the pasture. 4. Are you in the short run or long run with respect to the pasture? Ans____ _______ 5. At the beef price of $90.00 what is the optimum number of cows and what would your profit or loss be at this number and price? Ans. Cows Ans. ______Profit 6. If the price of beef was $98.00 what is the optimum number of cows and the profit or loss at that number and price? Ans. Cows Ans. ______Profit 7. If the price of beef was $60.00 what is the optimum number of cows and the profit or loss at that number and price? Ans. Cows Ans. ______Loss 8. If the price of beef was $45.00 what is the optimum number of cows and the profit or loss at that number and price? Ans. Cows Ans. ________________Loss 9. At some point the price of beef could be so low that you would be better off with no cows and leaving the pasture idle. This would happen whenever the price of beef was below what value? Ans. _____________ 10. The price of beef would have to be at least $ __ _____ to make 225 the optimum number of cows. 11. Assume a beef price of $92.50 and an offer from a neighbor to rent your pasture for $25,000 per year. As a profit maximizer, what should you do? Rent out your pasture or raise beef? Carefully explain your reason(s).

Explanation / Answer

1. There are no fixed costs in the long run hence this is the short run.

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