Question 3

The growing of agricultural products and other crops is a highly competitive industry with free entry and exit. A plant called "Lavender" is one of the most profitable specialty crops to grow and harvest in the US.Growing lavender can give growers a rate of return on their invested capital of close to 25%. The average rate of return for similar specialty crops is 10%

1. What would you expect to happen to the number of farmers growing lavender in the US?Explain why.
2. Growers in Mexicoare now growing lavender and have recently started importing lavender into the US. What do you think will happen to the number of growers of lavender in the US? What will happen to the profitability of growers of lavender in the US?Explain why.
3. Due to an outcry from lavender growers, a ban on imports of lavender from Mexico was enacted.What do you think will happen to the number of growers of lavender in the US? What will happen to the profitability of growers of lavender in the US?Explain why.