a) Write out the extensive form of a game between a farmer (playing in the first round) and nature (playing a mixed strategy in the second round).  Assume that the farmer can either pay a cash rent of $1500 for land (English system) or 1/2 of crop production to the landlord (sharecropping).  Assume the farmer is planting corn and will produce 2 tons of corn.  Assume that nature has a 50% chance of playing a strategy in which the price of corn is $3500/ton and a 50% chance of playing a strategy in which the price of corn is $500/ton.  The farmer keeps any money left after paying cash rent and sells any corn left after paying the landlord in sharecropping. b)What is the most that a risk neutral farmer would be willing to pay for an accurate prediction of the price of corn in problem 1 before choosing whether to pay cash rent or sharecrop?

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter15: Strategic Games
Section: Chapter Questions
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a) Write out the extensive form of a game between a farmer (playing in the first round) and nature (playing a mixed strategy in the second round).  Assume that the farmer can either pay a cash rent of $1500 for land (English system) or 1/2 of crop production to the landlord (sharecropping).  Assume the farmer is planting corn and will produce 2 tons of corn.  Assume that nature has a 50% chance of playing a strategy in which the price of corn is $3500/ton and a 50% chance of playing a strategy in which the price of corn is $500/ton.  The farmer keeps any money left after paying cash rent and sells any corn left after paying the landlord in sharecropping.

b)What is the most that a risk neutral farmer would be willing to pay for an accurate prediction of the price of corn in problem 1 before choosing whether to pay cash rent or sharecrop?

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