Question

Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices. It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quaotas on grain production, limiting farmers to a certain flat percentage of the grain acreage they cultivated previously. Suppose an individual farmer in country R wishes to minimize the impact on profits of the grain quota whose eventual imposition is being predidcted. If the farmer could do any of the following and wants to select the most effective course of action, which should the farmer do now?

(A) Select in advance currently less profitable grain fields and retire them if the quota takes effect.
(B) Seek long-term contracts to sell grain at a fixed price
(C) Replace obsolete tractors with more efficient new ones
(D) Put marginal land under cultivation and grow grain on it
(E) Agree with other farmers on voluntary cutbacks in grain production

Answer 1

Answer: The correct option is D. Put marginal land under cultivation and grow grain on it.

Explanation: From the scenario given above, we can see that a quota will be issued to limit farmers to a flat percentage of previous acreage cultivation, and what this means is that quotas issued will be calculated as a percentage of the farmer's preexisting grain production acreage.

The farmer would therefore benefit from increasing his/her grain production acreage even in cases where some of the new land to be used is suboptimal for grain cultivation.

Answer 2

Answer: A. Select in advance currently less profitable grain fields and retire them if the quota takes effect.

Explanation: It will be wise for the farmer to diversify his grain production, retire some unprofitable grain field and produce other crops. Since the quota system will make more bare land available to him, it will present an opportunity for the farmer to produce another type of crop.