Question

d) Suppose that Blissful Acres gets purchased by new owners that are committed to the ethical treatment of the environment and to workers. They adopt new growing methods that cost a bit more, but are less damaging to the environment. And, they commit to paying their workers an ethical wage. As a result, the MCs per acre farmed increase (see the table below). If they cannot charge more for their marijuana, what is the new profit maximizing number of acres devoted to marijuana? Explain your answer. Number of acres 10 20 30 40 50 60 70 MC$ 520 400 640 930 1,400 3,400 5,800 6,900 MR (hay) 730 730 730 730 730 730 730 730 MR (marijuana) 5,600 5,600 5,600 5,600 5,600 5,600 5,600 5,600 80

Answer 1

By looking just at the table given to us we can see that after 60acres the marginal cost of production exceeds the marginal revenue from Marijuana. At 60 acres marginal cost of production is at $3,400 while the marginal revenue is at $5,600. But soon as production goes from 60 to 70 acres the marginal cost of production goes to $5,800 while the marginal revenue stays at $5,600. So when marginal cost of production exceeds the marginal revenue the profits starts to decrease.

So the new profit maximizing acres of land devoted to Marijuana will be 60 acres. Since after 60 acres of land the marginal cost of production exceeds the marginal revenue and total profits starts to decline thereafter.