Harry, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Harry should add fertilizer if it costs less than
A) $12.50 per pound.
B) $20 per pound.
C) $80 per pound.
D) $100 per pound.

Question

Quizplus · Accepted Answer

To determine the cost at which Harry should add fertilizer, we need to calculate the marginal benefit and marginal cost of doing so. The marginal benefit is the increase in crop value per pound of fertilizer, which is:

Marginal Benefit = Increase in crop value / Amount of fertilizer
Marginal Benefit = ($100 - $80) / 1 pound = $20

Next, we need to determine the cost of adding fertilizer. Since the problem does not provide this information, we cannot calculate the actual cost. However, we can use the marginal cost as a proxy for the actual cost. The marginal cost is the cost of producing one additional unit of output, and in this case, it is the cost of adding one additional pound of fertilizer per acre. Assuming that the cost of other inputs remains constant, the marginal cost of adding fertilizer is the cost of the fertilizer itself.

Therefore, Harry should add fertilizer if the cost of one pound of fertilizer is less than the marginal benefit of adding that pound of fertilizer. Using the numbers we calculated above, this means that Harry should add fertilizer if the cost of one pound of fertilizer is less than $20.

Of the choices given, only option B ($20 per pound) satisfies this condition, so that is the best choice.

Harry, a Wheat Farmer, Is Deciding Whether or Not to Add