You Inherited 100 Acres of Iowa Farmland

question 52

Multiple Choice

You inherited 100 acres of Iowa farmland. There is an active market in this type of land, and similar properties currently sell for $10,000 per acre. If the land is planted with corn, you expect that the land will deliver net cash flows of $800 per acre forever. If the discount rate is 10 percent, how much is the land worth per acre?

• A)$10,000
• B)$8,000
• C)$18,000
• D)$12,000

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Definitions:

Production Capacity

The maximum output that a company or economy can produce under normal conditions within a given period, often influenced by available resources and technology.

Diminishing Returns

A principle indicating that as more of a variable input is added to a fixed input, the added output from each additional unit of input will eventually decrease.

Resource Labor

The work force considered as an economic resource, emphasizing the skills and abilities workers bring to the economy.

Marginal Output

The additional quantity of output that is produced by using one more unit of a particular input, holding all other inputs constant.