Given a 25% Chance of a 600,000 Bushel Yield and a 75

question 10

Multiple Choice

Given a 25% chance of a 600,000 bushel yield and a 75% chance of a 500,000 bushel yield,what quantity should the farmer hedge in order to protect against an uncertain harvest? Assume the farmer is willing to take reasonable risk.

• A) 0
• B) 500,000
• C) 525,000
• D) 600,000

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Definitions:

Marginal Product

The additional output derived from the addition of one more unit of a variable input, holding all other inputs constant.

Marginal Cost

refers to the increase in cost when producing one additional unit of output.

Average Variable Costs

Refers to the total variable costs (costs that change with production levels) divided by the quantity of output produced.

Average Fixed Costs

The total fixed costs of production divided by the total quantity of output produced, illustrating how fixed costs spread over units as output increases.