According to an article in the Wall Street Journal, a wheat farmer decided to take 170 acres out of production and plant grass on it rather than wheat because “that seemed like his only choice after spending about $6.50 a bushel on seed, fertilizer, fuel, and pesticides to grow wheat last year only to [sell the wheat for] . . . $2.90 a bushel.”
a. Are the costs listed in the article variable costs or fixed costs? Briefly explain.
b. Can we calculate the farmer’s loss per bushel of wheat from the information given? Briefly explain.
c. Provide an economic explanation for the farmer’s decision to take these acres out of production. Illustrate your answer with a graph.