Question

Short Answer (points are indicated after each part). Be sure to show work so that partial credit may be provided. 1. You are a corn producer with an APH of 100 bushels per acre. You elect to purchase yield crop insurance for this year. You select a 100% price coverage level and a 60% yield coverage level. Assume the RMA projected harvest price is $6.00 per bushel. Unfortunately, later that year you harvest only 50 bushels per acre. Will there be an indemnity? If so, how much? If not, why not? (4 points) Humor You elect to purchase

Answer 1

We have elected to have 100% price coverage level. What it means that if our total revenue is below APH*Projected price, we will get the extra amount.

The APH is 100, while projected price is 6. So our trigger price, below which the insurance will get triggered, is 100*6=600.

We also took 60% yield coverage, which means that we are guaranteed at least as much revenue as 60% of yield, or 60*6=360 dollars.

Turned out we only got 50 bushels per acre. So, our revenue was

50*6=300.

Price protection will pay us a total of 600-300=300 dollars.

Yield protection will pay us 10*6=60 dollars. The 10 here is the deficit in yield from the minimum yield. 60 was minimum and we got 50 only, so the deficit is 10.

The total amount we got from insurance is 300+60=360 dollars.

Yes there is an indemnity. Indemnity is the amount by which the revenue guarantee is higher than the actual revenue.

We received 360 dollars, while the actual revenue was 300, so the indemnity was 360-300=60 dollars.