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Now you would need to look at production costs of each crop:

  • 1.

    If it costs $40 more to grow soybeans, then you would be indifferent as to which you would choose to produce.

  • 2.

    If it costs less than $40 more to grow soybeans, then you would choose to produce soybeans.

That depends. We have not looked at the production cost of the equation yet. Remember, we want to maximize profits, not total revenue. Profits are equal to total revenue less all economic costs (accounting cost and opportunity cost). Now we have to budget the production cost for each crop.

If we find that soybean production is $40 per acre more expensive than corn production, then we would be indifferent as to which crop to really put in the ground. Why? Because there would be not difference in the profitability of the two alternatives.

If we find that soybean production is $30 per acre more expensive than corn production, then we would plant soybeans because we would make $10 more per acre than planting corn.

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