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IX. An agricultural program is intended to raise productivity in the strawberry industry. In SOW1 it would be effective and total profits in the industry

IX. An agricultural program is intended to raise productivity in the strawberry industry. In SOW1 it would be effective and total profits in the industry would increase by $20 million a year, but in SOW2 there would be no effect on profits. There is a 50% probability that it will be effective.

A. What is the EMV of the benefits of this project? B. Suppose that the project would be financed by the strawberry farmers' cooperative and would cost $9.5 million a year with certainty. What can you conclude about whether the project is worthwhile in each of the following cases? 1. Strawberry farmers are risk neutral. 2. Strawberry farmers are moderately risk averse. There are a total of 10 equal-sized farms in the industry whose current average annual income is $1 million. 3. Strawberry farmers are moderately risk averse and there are a total of 40,000 equal- sized farms in the industry. 4. Strawberry farmers are moderately risk averse. There are a total of 10 equal-sized farms in the industry whose average annual income without the project is $0.5 million in SOW1 and $1.5 million in SOW2.

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