If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 50,000 bushels. The cost of pesticides is $30,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either be $9.00 with probability of 0.50 or it will be $11.00 with probability 0.50, so if the farmer decides to sell the crop at harvest, the expected price per bushel that he will receive is $10.00. The corn farmer is considering two alternatives for selling his crop. The first is a contract where he can sell the rights to the future crop at planting. The second is to sell the crop after harvest. What is the maximum a purchaser would be willing to pay to the farmer for the rights to the future corn crop assuming they cannot monitor the farmer after purchasing the contract? a. $600,000.00 b. $550,000.00. c. $500,000.00 d. $540,000.00
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If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 50,000 bushels. The cost of pesticides is $30,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either be $9.00 with probability of 0.50 or it will be $11.00 with probability 0.50, so if the farmer decides to sell the crop at harvest, the expected price per bushel that he will receive is $10.00.
The corn farmer is considering two alternatives for selling his crop. The first is a contract where he can sell the rights to the future crop at planting. The second is to sell the crop after harvest. What is the maximum a purchaser would be willing to pay to the farmer for the rights to the future corn crop assuming they cannot monitor the farmer after purchasing the contract?
a. $600,000.00
b. $550,000.00.
c. $500,000.00
d. $540,000.00
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