Questions:

1. Think about this statement from a wheat farmer to the workers."The price of wheat is low this year, and the most I can get for the crop is $35,000.If I pay you the same amount as last year ($30,000) I will lose money because I also had to pay $20,000 three months ago for seed and fertilizer.I'd be crazy to pay a total of $50,000 to harvest a crop I can sell for only $35,000.If you will work for half as much as last year ($15,000), my total cost will be $35,000 and I will break even.If you don't take a pay cut, I won't harvest the wheat."Is he bluffing?Does the farmer make economic sense?Why or why not?

2. The price of oil has been all over the place in the last few years; it went up, then down and back up, back down, and now edging up again, thus driving the price of gas up and down. Right now, it is $2.19 where I buy gas, very low compared to two years ago. Related to that is the cost of refining it into a usable product. We actually have plenty of oil right now; it is scarce, but plentiful, especially with the new development of shale oil fields in the Dakotas and in Texas. However, the country has limited refinery capacity and we have not built a new refinery in over 20 years. The Keystone pipeline, if it is ever built, will carry oil from Canada and North Dakota all the way to Texas to be refined into gas and then trucked back to places like North Dakota and Nebraska. Why not refine some of that oil in the region, thus saving a lot of shipping cost? Why wouldn't the oil companies build refineries nearer their sources or their markets?

Discuss how this impacts their production costs.