1) Assume you are a wheat farmer in North Central Kansas, you have fixed costs p

Question

1) Assume you are a wheat farmer in North Central Kansas, you have fixed costs per acre of $84,
variable cost per bushel is $3.64, and you produce 56 bushels per acre.

-What is your total variable cost per acre?
-What is your total cost per acre?
-If the price you receive is $4.90/bushel, what is your revenue?
-If the price you receive is $4.90/bushel, what is your profit?
-If the price you receive is $4.90/bushel, what is your break-even quantity?
-If you produce 56 bushels per acre, what is your breakeven price?

Explanation / Answer

a) Total variable cost represents all cost that incurred in production which varies along with variation in production level.

Thus total variable cost = variable cost per bushel * units of bushels produced = 3.64 * 56 = $203.84

b) Total cost per acre = total variable cost + total fixed cost = $203.84 + $84 = $287.84

c) Total revenue is the total price that we get with the sale of all units.

Total revenue = price per bushel * total bushels sold = $4.90 * 56 = $274.4

d) Total Profit = Total Reveneu - Total Cost = $274.4 - $287.84 = $ -13.44

e) At break even quantity total revenue equals total cost.

Thus at break even: Total revenue = Total Cost

Price * Break even Quantity = (Variable cost * Break even Quantity) + Fixed cost

4.90 * Q = 3.64 Q + 84

Q = 66.67 = 67 units approx.

f) If break even Q = 56, then

56 P = 56*3.64 + 84

Break even Price = $5.14

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