You have worked as an investment banker in New York and Hong Kong for the last five years. You are tired of living in populated cities and yearn for a more peaceful environment. The Wall Street Journal contained a story about the federal governmentâs actions to increase cornbased ethanol as a substitute for gasoline in the United States.According to reports, new laws and regulations will result in the construction of hundreds of new ethanol factories over the next decade. Demand for corn to fuel the plants is expected to soar. Based on a Web search, you found 80 acres of prime farmland for sale in Illinois at a price of $10,000 per acre. You have saved enough from your past bonuses to purchase the land. You are tempted to quit your job and purchase the land to farm corn. Several colleagues have told you that it sounds like a good idea. They say that not only would it allow you to move to a less populated area, but it is a great business opportunity with little risk. Surely the price of farmland will increase dramatically over the next few years as the ethanol plants begin operation and the demand for corn skyrockets. Good farmland is limited, and you might reasonably expect its price to double or even triple over the next few years. You are smart and should be able to learn the farm business very quickly. In addition, you will have a cost advantage over farmers who wait to buy land at much higher prices. If you decide that you do not want to be a farmer, you can always sell the land at a âhuge profit.â
Question (Please do not ulitilize previous posted responses)
1. Explain why you think your colleagues did not give you good advice. Taking into account the total value and consumer/producer surplus in your explanation.
Smith Jr., Clifford W.; Jerold Zimmerman; James Brickley. Managerial Economics & Organizational Architecture (Irwin Economics) (Page 279). McGraw-Hill Higher Education. Kindle Edition.
You have worked as an investment banker in New York and Hong Kong for the last five years. You are tired of living in populated cities and yearn for a more peaceful environment. The Wall Street Journal contained a story about the federal governmentâs actions to increase cornbased ethanol as a substitute for gasoline in the United States.According to reports, new laws and regulations will result in the construction of hundreds of new ethanol factories over the next decade. Demand for corn to fuel the plants is expected to soar. Based on a Web search, you found 80 acres of prime farmland for sale in Illinois at a price of $10,000 per acre. You have saved enough from your past bonuses to purchase the land. You are tempted to quit your job and purchase the land to farm corn. Several colleagues have told you that it sounds like a good idea. They say that not only would it allow you to move to a less populated area, but it is a great business opportunity with little risk. Surely the price of farmland will increase dramatically over the next few years as the ethanol plants begin operation and the demand for corn skyrockets. Good farmland is limited, and you might reasonably expect its price to double or even triple over the next few years. You are smart and should be able to learn the farm business very quickly. In addition, you will have a cost advantage over farmers who wait to buy land at much higher prices. If you decide that you do not want to be a farmer, you can always sell the land at a âhuge profit.â
Question (Please do not ulitilize previous posted responses)
1. Explain why you think your colleagues did not give you good advice. Taking into account the total value and consumer/producer surplus in your explanation.
Smith Jr., Clifford W.; Jerold Zimmerman; James Brickley. Managerial Economics & Organizational Architecture (Irwin Economics) (Page 279). McGraw-Hill Higher Education. Kindle Edition.
