Question 1 In the good old times, Old McDonald's farm produced unprocessed tomato exclusively. Every year, the farm produced 100,000 tons and sold it at a profit margin of $2.1 per ton. In January 1998 , Old MacDonald decided to start exporting processed tomato (tomato pulp ) to Europe .At that time , the price of tomato pulp was $6 per ton. In order to produce tomato pulp, Old McDonald bought a machine capable of processing 100,000 tons per year. The machine cost $200,000 and was paid for with retained earnings that had been earning a rate of return of 8% per year. The machine had a useful life -time of 2 years - at the end of the rst year the machine's market value drops to $50,000 and then to zero at the send of the second year . In addition to the machine cost, there is a $2.2 per ton of labor cost (for harvesting and processing ). (a) Calculate the opportunity cost (or user cost of capital ) for the machine in the rst year of operation (b) Calculate average cost , marginal cost and prot margin in the rst year of operation (c) Did Old McDonald make a protable decision to switch from selling tomatoes to tomato pulp ? A few months later there was some bad news for Old McDonald. In December of 1998, the European Union increased its tariff on imported tomato pulp , implying that the net price received by American exporters is now only $5 per ton. An accounting consultant advices Old McDonald to sell the machine right away and go back to producing unprocessed tomatoes .Old McDonald needs to decide if to take the advice or not. ((1) What advice would you give Old McDonald as an economist \"P (Hint : Calculate the economic prot /loss , remembering to account for the opportunity cost of keeping or selling the machine .) (e) Would you change your advice ifthe price of unprocessed tomato were expected to be $.50 per ton higher that described above ? Show your calculations