Y6

Assume a farm with three major enterprises: dairy, corn, and wheat. Suppose that by shifting resources from corn and wheat enterprises to dairy production, there is a reduction of $4000 worth of corn and $5000 worth of wheat and an increase of 12000 litres of milk production.

(a) What is the cost of the additional milk production in terms of the two crops forgone? (5 marks)

(b) If price of milk is $0.85/litre, would you recommend that resources be shifted from corn and wheat production to dairy operations? Explain why?