Assume wheat is produced in the Sacramento Valley using irrigation water and nit
ID: 1149265 • Letter: A
Question
Assume wheat is produced in the Sacramento Valley using irrigation water and nitrogen fertilizer (together with land, labor, machinery, seed and other inputs.) Assume for this question that using 35 pounds of nitrogen per acre and 20 acre-inches of irrigation water produces 600 pounds of wheat (approximately 10 bushels) which sells for S0.50 per pound. Nitrogen costs $0.40 per pound. Assume that if 30 pounds of nitrogen were applied (with the same costs for all other inputs) yield would be 594 pounds and that if 40 pounds of nitrogen were used; yield would be 602 pounds of wheat 1. Use these numbers to explain why an application rate of 35 pounds of nitrogen may seem reasonable for a grower deciding simply how much fertilizer to use. 2. Now consider irrigation. Assume the water costs $6 per acre-inch and applying 19-acre inches rather than 20 would reduce yield to 580 pounds and increasing irrigation water to 21 acre-inches would increase yield to 605. Explain why 20 inches may seem like a reasonable choice for water application. . 3. Now the farmer learns that at an application rate of 35 pounds per acre some of the nitrogen leaches into the water he uses for irrigation and contaminates it with salts. With 35 pounds of applied nitrogen, wheat yield will still be 600 the first year, but lower in the following year and decline very gradually in future years to 520. Assume that the application rate of 30 would continue to yield 594 the first year and into the future. Assume the farmers guess is that prices of wheat and all inputs will remain unchanged. ' best a. Explain why this information would cause the farmer to use less fertilizer than 35. b. Is there an externality associated with the choice of fertilizer use in question 3? c. Why does the interest rate or discount rate affect the farmers choice of fertilizer?Explanation / Answer
Ans 2. 20 inches is an intermediate and would produce adequate amount of produtions with respect to other factors of production. However in other case the production increases but there are chances of not having the adequate production. The cost charges may increase and the farmer had a maintain a balance between all the factors of production. He cannot invest on a specific thing in huge amount with respect to his size of land.
3. (a) Because some of the lichens had developed in the water due to which he may reduce the amount of fertilizer he added in his crop.
(b) Excess use of fertilizer may rwduce the production of crop. But it will not affect the externalities of the market price. It totally depends on the production.
(c) Because he had to keep a balance sheet aming all the factors of production. Too high interest rate may cause him to be in debt in future due to loss of his production or failure of the crop may be due to natural calamity.