Your almond farm enterprise budget projects a price of a price of $1.00 per pound and a yield of 1,500 pounds per acre; fixed expenses are $100 per acre, your depreciation is $50 per acre and your variable costs are $600 per acre. You want to reduce your risk of rain during pollination, and you find that as an added expense you can buy crop insurance at three different levels of coverage:
The crop insurance has three different policies which will will guarantee:
50% of your gross income for $30/acre
60% of your gross income for $40/acre
70% of your gross income for $50/acre
Problem 1: If your goal in buying the insurance is to cover all expenses of this year's almond crop, which policy (level of coverage) should you buy?