Question
Jayden is a mushroom farmer. He invests all his spare cash in additional mushrooms which grow on otherwise useless land behind his barn. The mushrooms
Jayden is a mushroom farmer. He invests all his spare cash in additional mushrooms which grow on otherwise useless land behind his barn. The mushrooms double in weight during the first year, after which they are harvested and sold at a constant price per pound. Jayden's friend Isabella asks Jayden for a loan of $200, which she promises to repay after one year. (a) If the land is useless except for growing mushrooms, what is the opportunity cost of using the land to grow mushrooms? Explain. (b) Assume that if Jayden buys $200 worth of mushrooms that he can buy 100 pounds of mushrooms, paying a price of $2 a pound. After one year how many pounds of mushrooms will he have? Explain. (c) How much will he sell the mushrooms for? Explain. (d) How much interest will Jayden charge Isabella if Jayden wants to recover the opportunity cost of making the loan? Explain. (e) Give one example of some change in the world that would cause Jayden's opportunity cost to go down (which would then cause the interest Jayden charges to also go down).
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