Answer to Question #64437 in Macroeconomics for mf

Question

Felix is a wheat farmer who has two fields he can use to grow wheat. The first field is right next to his house and the topsoil is rich and thick. The second field is 10 miles away in the mountains and the soil is rocky. At current wheat prices, Felix just produces from the field next to his house because the market price for wheat is just high enough to cover his costs of production including a reasonable profit. What would have to happen to the market price of wheat for Felix to have the incentive to produce from the second field?

Answer 1

If the price for wheat on the market will rise, this will give the possibility to cover additional expenses for transportation and fertilization of the second field. Therefore, higher prices for wheat will be a sufficient incentive for Felix to have the incentive to produce from the second field.