Reference no: EM133046165
Question - A farming family owns some land. The following information is given to you: There are six people in the family.
In any year, the equivalent of two people is needed to farm each acre of land that the family owns.
The going wage (which each person can earn if he or she so chooses) is $1000.
Each acre of land produces $3000 worth of output (if it is farmed properly by two people, as earlier stated).
The family is always free to lease out land (i.e., charge a rent and give up the output to a tenant), but the outside option for tenants is $1100 per person.
The family can always hire labor (instead of leasing), but hired labor is useless without supervision, and to hire one supervisor to monitor labor (irrespective of the number of laborers that you hire or acres that they work), costs $2000 per year.
1. Calculate the maximum rent per acre the family can hope to obtain by leasing out land.
2. For simplicity, suppose that the family can either lease out all the land or none of the land, and that land comes in integer units of acres (for example, a family could have 5 or 6 acres, but not 5.5). For a six-person family, what is the minimum acreage necessary for it to be optimal to lease out land? Assume that they charge the maximum rent if they lease the land. Think about how will explain your answer.
3. What is the threshold acreage after which the family will no longer lease out land, but hire a supervisor and employ wage labor?
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