Official Explanation

Plan Evaluation

Of the plans described in the five answer choices and equally available to the farmer, which one would be the most effective to pursue?

It is expected that the grain board of Country R, which purchases surplus grain production from farmers at guaranteed prices, will, within a few years, impose quotas on each farmer's grain production in order to limit overproduction.

This plan will limit each farmer to a flat percentage of the grain acreage previously cultivated. The quota will be calculated based on pre-existing grain acreage (presumably averaged over a few years). Therefore, it would make the most sense for the farmer to boost grain acreage for the next few years, even if some of the acreage increase involves using land not optimal for grain production.

A. Selecting less profitable land now would make sense if no other course of action did. However, it would still entail some immediate reduction in profits: the land in question is currently less profitable, not unprofitable.

B. Long-term fixed-price contracts would presumably ensure the farmer's profitability from grain cultivation. But that might not occur if the total cost of agricultural inputs for grain cultivation were to significantly increase without the contracts safeguarding against such a case. Perhaps the most important factor, however, is that such long-term contracts could significantly limit the farmer's ability to profit from future upward trends in market demand for grain.

C. We are given no information to help us gauge how machinery obsolescence and major investment in new machinery might affect the profits from grain cultivation.

D. Correct. Since any quotas issued in a few years will be calculated as a percentage of the farmer's pre-existing grain-production acreage, the farmer would benefit from increasing his or her grain-production acreage even if some of the new acreage is suboptimal for grain cultivation.

E. To agree with other farmers on voluntary cutbacks might help forestall or at least delay the introduction of grain quotas by the grain board. However, it could have much the same effect as quotas even if it is sufficient to pre-empt mandatory quotas. Furthermore, it would carry the risk that some farmers would defect from any agreement if they perceived an advantage in doing so.

The correct answer is D.