Country R - Experts please help

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Country R - Experts please help

by reply2spg » Thu Aug 05, 2010 5:31 pm
Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices. It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quaotas on grain production, limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.

Suppose an individual farmer in country R wishes to minimize the impact on profits of the grain quota whose eventual imposition is being predidcted. If the farmer could do any of the following and wants to select the most effective course of action, which should the farmer do now?

(A) Select in advance currently less profitable grain fields and retire them if the quota takes effect.
(B) Seek long-term contracts to sell grain at a fixed price
(C) Replace obsolete tractors with more efficient new ones
(D) Put marginal land under cultivation and grow grain on it
(E) Agree with other farmers on voluntary cutbacks in grain production




[spoiler]I don't have OA for this. But IMO answer is A[/spoiler]

Why I selected A - Farmers are going to get flat percentage. There is a possibility that farmer's profit will go down. If I were farmer, then I would have done cost cutting by retiring those fields, which are less profitable. I simply personalize this argument and arrived at A. Please help me to understand if my logic is correct.
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by mbrown10012 » Thu Aug 05, 2010 8:23 pm
I think B is correct. If I knew the price of grain is going to go down due to some law, I would seek to sell my grain long term at a fixed price. Isn't this similar to investing in futures?

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by reply2spg » Thu Aug 05, 2010 8:28 pm
If you make a contract, don't you think law can overcome that contract???
mbrown10012 wrote:I think B is correct. If I knew the price of grain is going to go down due to some law, I would seek to sell my grain long term at a fixed price. Isn't this similar to investing in futures?
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by mbrown10012 » Fri Aug 06, 2010 5:42 am
Do you have the answer to this question?

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by reply2spg » Fri Aug 06, 2010 7:15 am
I don't have answer for this, if I get the same I will post the OA
mbrown10012 wrote:Do you have the answer to this question?
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by diebeatsthegmat » Wed Aug 11, 2010 10:55 am
reply2spg wrote:Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices. It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quaotas on grain production, limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.

Suppose an individual farmer in country R wishes to minimize the impact on profits of the grain quota whose eventual imposition is being predidcted. If the farmer could do any of the following and wants to select the most effective course of action, which should the farmer do now?

(A) Select in advance currently less profitable grain fields and retire them if the quota takes effect.
(B) Seek long-term contracts to sell grain at a fixed price
(C) Replace obsolete tractors with more efficient new ones
(D) Put marginal land under cultivation and grow grain on it
(E) Agree with other farmers on voluntary cutbacks in grain production




[spoiler]I don't have OA for this. But IMO answer is A[/spoiler]

Why I selected A - Farmers are going to get flat percentage. There is a possibility that farmer's profit will go down. If I were farmer, then I would have done cost cutting by retiring those fields, which are less profitable. I simply personalize this argument and arrived at A. Please help me to understand if my logic is correct.
to avoid heavy quotas while still have high profit is what the farmer wants
B is the answer...
its like business you do everyday... when you sign in a contract, you have to get along with it until the end of the contract, even whatever is happening or will happen....
business stuff :(

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by FightWithGMAT » Thu Aug 12, 2010 6:59 am
reply2spg wrote:Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices. It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quaotas on grain production, limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.

Suppose an individual farmer in country R wishes to minimize the impact on profits of the grain quota whose eventual imposition is being predidcted. If the farmer could do any of the following and wants to select the most effective course of action, which should the farmer do now?

(A) Select in advance currently less profitable grain fields and retire them if the quota takes effect.
(B) Seek long-term contracts to sell grain at a fixed price
(C) Replace obsolete tractors with more efficient new ones
(D) Put marginal land under cultivation and grow grain on it
(E) Agree with other farmers on voluntary cutbacks in grain production




[spoiler]I don't have OA for this. But IMO answer is A[/spoiler]

Why I selected A - Farmers are going to get flat percentage. There is a possibility that farmer's profit will go down. If I were farmer, then I would have done cost cutting by retiring those fields, which are less profitable. I simply personalize this argument and arrived at A. Please help me to understand if my logic is correct.
It should be A.

After imposing quota, government can take only a fixed % of the produced grain. the farmers can not sell the remaining crop in the open market. so it would be wastage. To avoid this, the farmers can select the most productive portion of the fields and use this land to grow crops that can be absorbed by the government.

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by gmat1011 » Thu Aug 12, 2010 8:31 am
it is B --- long term contracts at fixed prices simulate the effect of the 'guaranteed' prices offered by the board

the govt doesn't want too many people lining up to get guaranteed prices for what they cannot sell on the mkt and by imposing the quotas is controlling the amount they produce so they can sell in the market without coming to the govt board to sell... not bad thinking eh... smart govt... :mrgreen:

If the clever farmer figures that out he/she will do long term contracts to sell at fixed prices rather than being subject to the whims of the market price under the quota regime...

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by loving.achin » Thu Aug 12, 2010 8:36 am
IMO : 'A'

After imposing quote : Farmers are allowed to grow fix % of what he growed before quota.
i.e. z = x/100 * y where y is production before quota


Consider Field A (he brought it and will sell after quote) to be less productive hence less profitable field : Say, it grows 1 kg grain
Consider Field B to be more productive hence more profitable field : Say, 4 kg grain

Before Quota : 4 + 1 ( = 5Kg)
After Quota : Govt impose limit of 40% = 5 * 40 = 2

He has a limit to grow only 2 kg, hence it can be grown on Field 'B'. So he will see off the less profitable field (without bringing much disturbance to his funds)

Thus he will keep his profit maximum.

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by ankurmit » Thu Aug 12, 2010 8:59 am
I will go with B..

But its very sad that there is no OA :(
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by gmat1011 » Thu Aug 12, 2010 9:02 am
loving.achin - your argument assumes that the quota % limit once imposed stays fixed --- "flat percentage of the grain acreage they cultivated previously" - I am not sure if the quota limit will not re-set based on the higher production obtained subsequently after the useless land is retired; "cultivated previously" to me suggests that the quota % will re-set with each round of production

in any case the lands left after retirement of the useless land better be superfertile for the farmer to have this as a plan to minimize the impact on his profits after the quota goes into effect...

lets take 1.5 as the fertile land and .5 as the capacity of the useless land... after lets say a 40% quota limit --- post retirement of the useless land, the fertile land will have a lot of work of to do!

also "most effective" way to me doesn't mean the farmer should go buy useless land land! when he can just enter into a long term contract

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by uwhusky » Thu Aug 12, 2010 9:16 am
It's either B or E.

Initially I was leaning toward B, but after some thoughts, I think my answer would be E.

Long term contract is undefined, but a term is still finite, thus you will be facing the same issue x number of years down the road.

E resolves the issue by removing the need for the board to set a quota, and thus putting farmers back in control.

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by uwhusky » Thu Aug 12, 2010 9:23 am
The reason why I don't think A could be correct is because if a quota is going to be in place, I would actually starting to rotate my best fields to other crops and leave my worst fields for the crop that is about to be restricted.

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by gmat1011 » Thu Aug 12, 2010 9:30 am
I thought of E too for the same reason --- but E doesnt say something like "all" other farmers... it doesnt say how many other farmers... we have to think of an "individual farmer" and try to protect his interest - can he cut a deal with so many other farmers as to stop overproduction from happening? didn't seem very plausible to me and not an "effective" way...

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by uwhusky » Thu Aug 12, 2010 9:34 am
Using the same reasoning to discount E, I could say the same about B. B doesn't say how long is long term, and such expression could be relative to what is common in this country. For example, if typical contract is 6 months, 3 years could be considered as long term, and at the end of the contract, you are facing with the same issue.

I really don't think GMAT is going to play with words like that and open the door for endless debates on minor details.