Final 2007 Key - AAE 320 Spring 2007 Final Exam#2 Name_KEY...

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1 AAE 320 Spring 2007 Final Exam #2 Name: ______KEY _________________ 1) (25 pts. total) You are a hog farmer thinking of growing low phytate corn for your hog feed. Low phytate corn increases the bioavailability of phosphorus in corn so that hogs gain faster and the manure contains less phosphorus, but the seedcorn is more expensive and the corn yields lower as well. Conduct a partial budget analysis of growing low phytate corn for your hog feed. You currently farm with 1000 acres of corn, with an average yield of 150 bu/ac. Use the corn market price of $3.50/bu as the price (opportunity cost) of your raised corn. Low phytate corn costs an additional $5/ac for the seed compared to conventional corn and yields 2% lower. With low phytate corn, the manure has lower phosphorus, so you can apply more manure per acre and thus do not have to haul the manure as far. You estimate that you could reduce your manure hauling costs by $5,000 per year. Due to more rapid weight gain on low phytate corn, you estimate that you could sell 100 more hogs per year at a market weight of 250 lbs for a price of $0.50/lb. Ignore all other costs and benefits in your analysis. Show your work for potential partial credit. a) (5 pts.) What is the Additional Revenues (if any)? Faster Gain: $0.50/lb x 250 lbs x 100 hogs = $12,500 b) (5 pts.) What is the Additional Costs (if any)? Tech Fee: 1,000 acres x $5 = $5,000 c) (5 pts.) What is the Costs Reduced (if any)? Manure Handling $5,000 d) (5 pts.) What is the Revenues Reduced (if any)? Yield Drag = $10,500 e) (5 pts.) Use your numbers to fill in the Partial Budget below, and then calculate the Total Benefits, Total Costs, and Net Benefit. Additional Revenues Additional Costs $12,500 $5,000 Costs Reduced Revenues Reduced $5,000 $10,500 Total Benefits $17,500 Total Costs $15,500 Net Benefit $2,000
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2 2) (5 pts.) Your neighbor says he thought about expanding his corn acreage this year by renting 40 more acres of land. He said he would make more money (he estimated a net gain of $4,000), but he decided not to do it because the opportunity cost of his time was too high to justify it. Explain what opportunity costs means here.
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This note was uploaded on 08/08/2008 for the course AAE 320 taught by Professor Mitchell during the Spring '08 term at University of Wisconsin.

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Final 2007 Key - AAE 320 Spring 2007 Final Exam#2 Name_KEY...

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