You, a Farmer, Anticipate Taking 80,000 Bushels of Soybeans to the Market

question 77

Multiple Choice

You, a farmer, anticipate taking 80,000 bushels of soybeans to the market in three months. The current cash price for soybeans is $5.85. The size of the futures contract is 5,000 bushels per contract, and the current three-month futures price is $5.88. You decide to hedge one-half of your exposure to a drop in the value of soybeans. Assume that in three months, when you take the soybeans to market, you close out the futures contracts and the price has fallen to $5.80. What is the total loss in value over the three months on the actual soybeans you produced and took to market?

• A)$2,400
• B)$2,000
• C)$6,400
• D)$4,000
• E)$3,200

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Definitions:

Monopolistic Competition

A market structure where many companies sell products that are similar but not identical, allowing for significant competition but with some control over prices.

Pure Competition

A market structure characterized by a large number of small firms selling identical products with no single firm able to influence price.

Product Differentiation

The approach of making a product or service stand out in the market to appeal more to a designated target segment.

Productive Efficiency

A scenario where an economy or entity can no longer produce additional amounts of a good without lowering the production level of another product.