Essay
Farmer Marley grows barley, and every year he risks losing his crop to drought, insects, or disease. Precautions such as proper soil preparation and the judicious use of water, fertilizer, and pesticide can reduce the risk of crop failure. The marginal benefit and marginal cost of these precautions are MB = 120 - 4A and MC = 20 + A, where A is the number of precautions.
a. How many precautions does Marley take?
b. Suppose that Marley buys insurance against the risk of crop failure, which changes the marginal benefit of precautions to MB = 100 - 7A. How many precautions does Marley now take?
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a. Set MB = MC and solve for A...View Answer
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