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Difficulty: Very hardEvaluating Plans, Strategies, and Useful Information

To boost regional farm earnings during droughts, a state agricultural agency plans to subsidize half the cost of a new drought-resistant wheat seed for local farmers. Because this new strain yields 25 percent more grain per acre during dry spells than traditional strains, agency officials claim the subsidy program will increase net agricultural revenue across the region during drought years. Which of the following would be most useful to determine in evaluating the likelihood that the agency's plan will achieve its intended goal?

  1. Whether the market price per bushel of wheat declines disproportionately when regional supply increases during drought years.Answer
  2. B
    Whether the synthetic chemical treatment required for the new seed strain reduces the long-term soil fertility needed for non-wheat rotational crops.
  3. C
    Whether neighboring agricultural districts intend to introduce similar subsidized crop programs within the next decade.
  4. D
    Whether traditional wheat strains can survive mild dry spells using smaller quantities of water than previously estimated.
  5. E
    Whether the agricultural agency currently earns a profit on the distribution of other subsidized farm inputs.

Answer

Determining whether the market price per bushel drops disproportionately when supply rises provides the necessary test of variance to evaluate whether increased yield translates into increased net agricultural revenue.
The plan relies on the mathematical assumption that a 25 percent increase in grain volume will increase total revenue. However, Total Revenue = Price × Quantity. If increasing local output causes the market price per bushel to drop significantly, total revenue could decrease despite the higher yield. Determining the price behavior under increased supply is therefore critical for evaluating the plan.

Step-by-Step Solution

1
Identify the plan and its explicit objective.
Plan: Subsidize 50% of the cost of a high-yielding drought-resistant wheat seed. Objective: Increase net agricultural revenue during drought years based on a 25% yield increase per acre.
Evaluating a plan requires checking whether the proposed mechanism directly leads to the desired objective.
2
Apply the Variance Test to evaluate the plan's core financial assumption.
Revenue is calculated as Quantity Sold multiplied by Price per Unit, minus Costs. If total quantity produced increases due to higher yields, but the market price per unit drops at a faster rate due to oversupply, total gross revenue (and thus net revenue) will fall.
Knowing price elasticity reveals whether higher crop volume actually yields higher revenue or causes a market price crash that undermines net earnings.
3
Select the choice that directly measures this price-yield relationship.
The option assessing whether price per bushel declines disproportionately directly impacts the success or failure of the goal.
An affirmative answer undermines the plan's objective, while a negative answer validates it.

Key Concept

Evaluating Plan Efficacy via Test of Variance
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Topics

Evaluating Plans, Strategies, and Useful Information

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