2. In 1917, Gandhi settled a dispute between Indian farmers and British landowners. Under a share-cropping arrangement, each indigo farmer gave 15 percent of the harvest to the landowner.

When landowners heard about the development of synthetic indigo, they quickly sold the land to the farmers, who at that time didn't know about synthetic indigo and the upcoming collapse of indigo prices. When the prices of indigo dropped, the farmers who had purchased land demanded their money back.

Gandhi negotiated a partial refund of the payments. Imagine you are Gandhi's research assistant and must compute the appropriate refund for the typical new landowners with the following information:

-The initial indigo price is $10, the annual output is 100 units per hectare. Farmers incur non-land costs.

-To purchase land, farmers borrow money at 10 percent interest rate (ongoing market rate)

-The alternative crop is rice, which has a price of 8, an annual output of 100 units and a non-land cost of 700 (including the opportunity cost).

A.Under the original share-cropping arrangement, the effect land rent = ______, computed as ______. This implies that non-land cost of indigo production is _____.

B.Before farmers find out about synthetic indigo, the anticipated annual profit from indigo is ___ per hectare. A farmer's willing to pay for one hectare of land is ___________.

C.Suppose the development of synthetic indigo decreases the price of indigo to be 5. The new annual profit from a hectare of land is ___________.

D.A farmer's willingness to pay is _________ per hectare. The appropriate refund should be ____, computed as ____________.