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.  If the farmer uses pesticide and decides to sell the crop at harvest, what is his expected profit?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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  1. 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.  If the farmer uses pesticide and decides to sell the crop at harvest, what is his expected profit?

     

      a.

    $120,000.00

      b.

    $150,000.00

      c.

    $180,000.00

      d.

    $20,000.00

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