Gce Model Questions Vol1 2019 Agricultural Science Question 35
Practice objective / multiple choice question 35 from the 2019 Gce Model Questions Vol1 Agricultural Science examination.
A farmer plans to grow a cash crop on 1 ha. Fixed costs are land rent £200 ha⁻¹ and machinery depreciation £150 ha⁻¹. Variable cost is £50 per ton of yield. Expected yield is 4 t ha⁻¹. The market price per ton is uncertain: with probability 0.6 it will be £120, with probability 0.4 it will be £80. The farmer can buy an insurance policy costing £30 ha⁻¹ that guarantees a minimum price of £90 t⁻¹ (the insurer pays the difference per ton if the market price falls below £90). Should the farmer purchase the insurance? Show the expected net profit with and without insurance and state the decision.
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About This Question
This is Gce Model Questions Vol1 2019 Agricultural Science Question 35. It is one of the objective questions from the 2019 Gce Model Questions Vol1 Agricultural Science examination.
Difficulty level: Hard .
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