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    Maximizing Potato Field Profits Using Marginal Analysis

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    Doug's farm in Idaho has four major fields that he uses to grow potatoes. The productivity of each field follows:


    Field 1 10,000
    Field 2 8,000
    Field 3 5,000
    Field 4 3,000

    Assume that each field is the same size and that the variable costs of farming are $25,000 per year per field. The costs cover labor and machinery time, which is rented. Doug must decide each year how many fields to plant. Last year, potato farmers received $6.35 per 100 pounds.

    How many fields did Doug plant? Explain.

    By this year the price of potatoes had fallen to $4.50 per 100 pounds. How will this price decrease change Doug's decision? How will it affect the value of Doug's land?

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    Solution Preview

    See the attached file. Profit increases as long as Marginal Revenue (MR) > Marginal Cost (MC). When the price ...

    Solution Summary

    This solution shows how a farmer will use marginal analysis to decide how many potato fields to plant given the market price of potatoes.