A farmer believes there is a 50-50 chance that the next growing season will be abnormally rainy. His expected utility function has the form expected utility =;In Y NR +;In YR, where YNR and YR represent the farmer's income in the states of “normal rain" and "rainy," respectively. a. Suppose the farmer must choose between two crops that promise the following income prospects: Crop YNR YR Wheat $28,000 $10,000 $15,000 Corn $19,000 Which of the crops will he plant? b. Suppose the farmer can plant half his field with each crop. Would he choose to do so? Explain your result. c. What mix of wheat and corn would provide maximum expected utility to this farmer? d. Would wheat crop insurance-which is available to farmers who grow only wheat and which costs $4,000 and pays off $8,000 in the event of a rainy growing season-cause this farmer to change what he plants?
A farmer believes there is a 50-50 chance that the next growing season will be abnormally rainy. His expected utility function has the form expected utility =;In Y NR +;In YR, where YNR and YR represent the farmer's income in the states of “normal rain" and "rainy," respectively. a. Suppose the farmer must choose between two crops that promise the following income prospects: Crop YNR YR Wheat $28,000 $10,000 $15,000 Corn $19,000 Which of the crops will he plant? b. Suppose the farmer can plant half his field with each crop. Would he choose to do so? Explain your result. c. What mix of wheat and corn would provide maximum expected utility to this farmer? d. Would wheat crop insurance-which is available to farmers who grow only wheat and which costs $4,000 and pays off $8,000 in the event of a rainy growing season-cause this farmer to change what he plants?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education