Suppose that price and quantity are positively correlated as in this table: Price $2 Quantity 0.6m bu Revenue $1.2m $3 0.934m bu $2.8m There is a 50% chance of either price. The futures price is $2.50. Demonstrate the effect of hedging if we do the following:

a. Short the expected quantity.

b. Short the minimum quantity.

c. Short the maximum quantity.

d. What is the hedge position that eliminates variability in revenue? Why?

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