Reference no: EM1387702

The Ploughman family farm owns and operates a 640-acre farm that has been in the family for several generations. The Ploughman's always have had to work hard to make a decent living from the farm and have had to endure some occasional difficult years. Stories about earlier generations overcoming hardships due to droughts, floods, etc., are an important part of the family history. However, the Ploughman's enjoy their self-reliant lifestyle and gain considerable satisfaction from continuing the family tradition of successfully living off the land during an era when many family farms are being abandoned or taken over by large agricultural corporations.

John Ploughman is the current manager of the farm while his wife Eunice runs the house and manages the farm's finances. John's father, Grandpa Ploughman, lives with them and still puts in many hours working on the farm. John and Eunice's oldest children, Frank, Phyllis, and Carl, also are given heavy chores before and after school.

The entire family can produce a total of 4,000 person-hours worth of labor during the winter and spring months and 4,500 person-hours during the summer and fall. If any of these person-hours are not needed, Frank, Phyllis, and Carl will use them to work on a neighboring farm for $5 per hour during the winter and spring months and $5.50 per hour during the summer and fall.

The farm supports two types of livestock: dairy cows and laying hens, as well as three crops: soybeans, corn, and wheat. (All three are cash crops, but the corn also is a feed crop for the cows and the wheat also is used for chicken feed.) The crops are harvested during the late summer and fall. During the winter months, John, Eunice, and Grandpa make a decision about the mix of livestock and crops for the coming year.

Currently, the family has just completed a particularly successful harvest which has provided an investment fund of $20,000 that can be used to purchase more livestock. (Other money is available for ongoing expenses, including the next planting of crops.) The family currently has 30 cows valued at $35,000 and 2,000 hens valued at $5,000. They wish to keep all this livestock and perhaps purchase more. Each new cow would cost $1,500, and each new hen would cost $3.

Over a year's time, the value of a herd of cows will decrease by about 10 percent and the value of a flock of hens will decrease by about 25 percent due to aging.

Each cow will require 2 acres of land for grazing and 10 person-hours of work per month, while producing a net annual cash income of $850 for the family. The corresponding figures for each hen are: no significant acreage, 0.05 person-hours per month, and an annual net cash income of $4.25. The chicken house can accommodate a maximum of 5,000 hens, and the size of the barn limits the herd to a maximum of 42 cows.
For each acre planted in each of the three crops, the following table gives the number of person-hours of work that will be required during the first and second halves of the year, as well as a rough estimate of the crop's net value (in either income or savings in purchasing feed for the livestock).

Data per Acre Planted
Soybeans Corn Wheat
Winter and spring, person-hours 1.0 0.9 0.6
Summer and fall, person-hours 1.4 1.2 0.7
Net Value $70 $60 $40

To provide much of the feed for the livestock, John wants to plant at least 1 acre of corn for each cow in the coming year's herd and at least 0.05 acre of wheat for each hen in the coming year's flock.

John, Eunice, and Grandpa now are discussing how much acreage should be planted in each of the crops and how many cows and hens to have for the coming year. Their objective is to maximize the family's monetary worth at the end of the coming year (the sum of the net income from the livestock for the coming year plus the net value of the crops for the coming year plus what remains from the investment fund plus the value of the livestock at the end of the coming year plus any income from working on a neighboring farm, minus living expenses of $40,000 for the year).

The above estimates of the net value per acre planted in each of the three crops assume good weather conditions. Adverse weather conditions would harm the crops and greatly reduce the resulting value. The scenarios particularly feared by the family are a drought, a flood, an early frost, both a drought and an early frost, and both a flood and an early frost. The estimated net values for the year under these scenarios are as follows:

Net Value per Acre Planted Net Value per Acre Planted Net Value per Acre Planted
Scenario Soybeans Corn Wheat
Drought -$10 -$15 $0
Flood $15 $20 $10
Early frost $50 $40 $30
Drought and early frost -$15 -$20 -$10
Flood and early frost $10 $10 $5
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