A farmer grows a specialized, high-demand grain. Total proje…
A farmer grows a specialized, high-demand grain. Total project value: The grain is worth $100,000 once it is processed and sold to customers. Farmer’s costs: The farmer’s total cost already incurred to grow the crop is $40,000. Grain elevator’s costs: The grain elevator’s cost for storage and processing is $30,000. Initial contract: The farmer and the grain elevator company agree on an initial price of $50,000 for storage and processing. After the farmer has harvested the crop and loaded it into trucks, the grain elevator company knows the farmer has a perishable product with no alternative local storage options. The nearest alternative is in another state, and the cost of transport would be prohibitive, effectively making the farmer’s best alternative to sell the grain for just $10,000 or see it spoil. Given this information, up to how much could the Grain Elevator extract from the Farmer? How did you get this answer? What numbers go into your calculation and why?