Under the agricultural policies of Country R, farmers can sell any gra

Question

Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices. It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quotas on grain production, limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.

Suppose an individual farmer in Country R wishes to minimize the impact on profits of the grain quota whose eventual imposition is being predicted. If the farmer could do any of the following and wants to select the most effective course of action, which should the farmer do now?

A. Select in advance currently less profitable grain fields and retire them if the quota takes effect.
B. Seek long-term contracts to sell grain at a fixed price.
C. Replace obsolete tractors with more efficient new ones.
D. Put marginal land under cultivation and grow grain on it.
E. Agree with other farmers on voluntary cutbacks in grain production.

CR97561.01

nightblade354 · Accepted Answer

Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices. It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quotas on grain production,  limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.

Suppose an individual farmer in Country R wishes to minimize the impact on profits of the grain quota whose eventual imposition is being predicted. If the farmer could do any of the following and wants to select the most effective course of action, which should the farmer do now?

Unique set up; we are told that we have a fail-safe if we do not sell our grain on the open market, but that the government wants to limit our cultivation because we will abuse this. We want to protect ourselves. How? Well, the first thing that catches my eye is the last sentence in blue. If it is on an acreage basis, we should try to preserve or gain as much as we can. But this could go in a million directions, so let's see where it takes us. 
 
A. Select in advance currently less profitable grain fields and retire them if the quota takes effect. --  Opposite of what we want. If we start with 4 acres and move to 3, and we are told that it is a fixed % basis, let's say 50%, well we just went from 2 acres to 1.5 acres to cultivate. Do not assume that just because it is less profitable we can get rid of it. Further, don't assume that we will meet the quota. Maybe this is too much land to give up? Wrong.

B. Seek long-term contracts to sell grain at a fixed price. --  OK, but who cares? Is this the open market or our board? And if it's our market, is the price more or less than what we currently receive? Do not assume that we are locking in our profits. We could be costing ourselves money by locking in lower rates compared to the free market. Out.

C. Replace obsolete tractors with more efficient new ones. - - Who cares? Efficiency and profits are not the same thing. Maybe this new tractor bankrupts us; maybe this new tractor is efficient, but uses more fuel and costs more money. We don't know what "efficient" means in this case. Do not make assumptions to justify this answer choice. Out.

D. Put marginal land under cultivation and grow grain on it. --  So if we have 4 plots cultivated, but we add 6 more, we get 10 total. And if we keep 50%, we get 5 acres instead of 2; this is perfect! We get to increase/keep our profits even with the quota.

E. Agree with other farmers on voluntary cutbacks in grain production. --  Two reasons why this is wrong: 1. Is "other farmers" all of them or just a few? It could be 10, 100, or 1,000,000; we don't know our populace. If this said "all", it could be better but still not perfect. 2. Do the cutbacks allow for the prevention of the quota system? We don't know what triggers this, so we could bargain with everyone and still need to cut out production and we are in the same place as we were before. Out.

GMATIntensive · Answer

The Story     
 Under the agricultural policies of Country R, farmers can sell any grain not sold on the open market to a grain board at guaranteed prices.  - Policies allow farmers to sell unsold grain to a board at guaranteed prices. (This seems to take away the incentive of farmers to do proper demand estimation since it seems they’ll not make a loss on the grain not sold in the open market.)

It seems inevitable that, in order to curb the resultant escalating overproduction, the grain board will in just a few years have to impose quotas on grain production,  - “resultant escalating overproduction” implies that as a result of the policies, not only are farmers producing more than the open market demand, but the overproduction is escalating as well. The author predicts that to tackle this increasing overproduction, the grain board will have to impose restrictions on production.

limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.  - What sort of restrictions? Farmers will be limited to using a fraction of the acreage they cultivated previously. Say a farmer has 10 acres of land that he uses to produce grain. Under the restriction, the farmer will not be able to use the entire 10 acres of land to cultivate grains.

Gist:  
A grain board buys unsold grain from farmers at guaranteed prices. It seems that the board will eventually have to impose quotas on grain production to tackle the increasing overproduction. The farmers would be restricted to using only a flat percentage of the acreage they cultivated previously.

The Goal     
We’ve been asked to consider an individual farmer with certain specific motivations. The farmer wishes to maintain his profits after the grain quota is implemented as close as possible to what they were before.

What would help the farmer not let his profits drop too much after the restriction is imposed? How can the farmer not let his profits get impacted despite not being able to use his entire piece of land? A concrete way to achieve this is not striking at this point. Let’s go through the answer choices.

The Evaluation

A. Select in advance currently less profitable grain fields and retire them if the quota takes effect. 
  Incorrect  . What impact would selecting in advance fields the farmer would retire have on the profits? What if the farmer did not select “in advance” and made the same decision the evening before the quotas are imposed? Would that make any difference w.r.t. the profits? None.

B. Seek long-term contracts to sell grain at a fixed price. 
  Incorrect  . The prices of grain are not at issue. The restriction is not on how much grain can be sold. The restriction is on what proportion of land can be used for cultivation, and as a consequence how much grain can be produced in a piece of land. There is nothing in the passage to indicate that the farmers are not able to sell grains at a profitable price. So, fixing the selling price through long-term contracts would not help them maintain profits.

C. Replace obsolete tractors with more efficient new ones. 
  Incorrect  . The farmer wishes to minimize the impact on profits of the grain quota. While improving efficiency might increase overall profitability, tractors’ efficiency has no bearing on the impact of the grain quota. Anyway, buying new tractors might be capital intensive and might impact profits negatively.

D. Put marginal land under cultivation and grow grain on it. 
  Correct  . “marginal land” indicates part of the land that the farmer owns but does not currently use for cultivation. If the farmer puts this marginal land under cultivation and grows grain on it, this piece of land would also be considered a part of ‘grain acreage cultivated previously’ when implementing the quota. Since the quota would require reducing land under cultivation by a flat percentage, the farmer could then first stop cultivation in this marginal land, and only if the percentage is still not achieved, he’d need to stop production in some part of the land that he originally used for cultivation.

E. Agree with other farmers on voluntary cutbacks in grain production.  
  Incorrect  . Let’s say other farmers agree to the cutbacks. What would voluntarily cutting back grain production achieve?

Let’s say that the grain board opines that the cutbacks have reduced the overproduction satisfactorily and thus quotas on grain production are not needed. What then? Either way, the farmer’s sellable grain quantity has reduced, and thereby his profits have taken a hit.

How about if the cutbacks are not significant enough and the grain board decides to impose quotas on grain production (albeit, slightly less stringent)? In this case too, the overall production would reduce, and thus his profits would still take a significant hit.

If you have any doubts regarding any part of this solution, please feel free to ask.

ArtVandaley · Answer

D amazing one. Took me more than 1 min to just grasp the information. Though answered it under two.

D is a clear winner and the answer lies in the last sentence.

The board is limiting the farmer to a certain percentage of already used land. So the farmer should try to maximize the land under cultivation in order to get maximum land after the rule becomes effective

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Skywalker18 · Answer

-As per current agricultural policies, a farmer can sell any grain not sold on the open market to a board at guaranteed prices
- In just a few years, the board will have to impose quotas on grain production, limiting farmers to a certain flat percentage of the grain acreage they cultivated previously.
Plan of action for a farmer to minimize the impact on profits of the grain quota whose eventual imposition is being predicted-

A. Select in advance currently less profitable grain fields and retire them if the quota takes effect.- incorrect, taking less profitable grain fields makes no sense as it might lead to other issues
B. Seek long-term contracts to sell grain at a fixed price.- incorrect, we do not how whether these long-term contracts will be valid once the new quota is imposed and we do not know how long these contracts will be
C. Replace obsolete tractors with more efficient new ones.- Irrelevant
D. Put marginal land under cultivation and grow grain on it. - Correct
If the current production of our farmer is 100 tonnes of grain X. If, the marginal land is put under cultivation and the production increases to say 125 tonnes in the next year.
Now, we know that post the imposition of production quotas, each farmer will be limited to a certain percentage of grain acreage cultivated by the farmer previously. So, when the limit is imposed, it will a fixed percentage on then value(say 120 tonnes,which is higher than our initial value)

E. Agree with other farmers on voluntary cutbacks in grain production. - incorrect, Firstly we don't know how many farmers are involved in this agreement.
This might be a better scenario for all farmers taken together, but for an individual farmer, this is not the best way. Also, some farmers agreeing on a voluntary cutback might only delay the inevitable.
If the current production of our farmer is 100 tonnes of grain X. Post the voluntary cutback, the grain production will be say 90 tonnes.
So, when the limit is imposed, it will a fixed percentage on then value(90 tonnes)

Answer D

gmatt1476 · Answer

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.

MRAJINKYA · Answer

I am confused here. Doesn't the answer choice D say  Put marginal land under cultivation 
While Explanation says  the farmer would benefit from increasing his or her grain-production acreage 
Aren't these two statements contradictory?

RK007 · Answer

Hey MRAJINKYA , Here the the word marginal means that apart from the cultivation that is happening on the main land, farmers should also use the margins/ edges of their fields.. in short less optimum than the main land but that doesn't matter since goal is quantity not quality. Hope it helps. Please give Kudos if it helped

zoezhuyan · Answer

dear  GMATNinja ,  gmat1393 ,  GMATNinjaTwo ,  nightblade354 
anyone can help understand the OE of following:

I did not get it.
thanks a lot

XyLan · Answer

Conclusion: What step MUST be taken to LIMIT the impact on profits of the grain quota? Pre-Think: The entire logic is based on the PAST acreage: a certain FLAT percentage of the grain acreage farmers cultivated PREVIOUSLY. What if, the farmers, in any way, CAN increase the acreage to compensate for the FLAT percentage cultivated PREVIOUSLY? Let's say: Initially, the acreage was 100 units. Now, to compensate for the impact on profits, the farmers decided to rig the LIMIT on the grain cultivated PREVIOUSLY by increasing the OVERALL acreage. That's some witty farmers!

Increase the OVERALL acreage -------> To circumvent the rule of grain acreage cultivated PREVIOUSLY. New increased OVERALL acreage: 200 units The quotas will be decided on the new grain acreage( 200 units ) rather than on 100 units. Answer choice analysis: A.) Select in advance currently LESS profitable grain fields and retire them if the quota takes effect. 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. The impact of A is DICEY: It CAN EITHER decrease the immediate profits because of LESS profitable grain fields. - A weakener OR increase the overall acreage because of the selection of a number of grain fields in ADVANCE and then retiring them if the quota takes effect. - A strengthener Moreover, Selecting in advance the LESS profitable grain fields ----NOT necessarily implies----> increase in OVERALL profits. The impact of A is inconsistent and CAN sway in EITHER direction. B.) Seek long-term contracts to sell grain at a fixed price. What if, the grain price INCREASED because of increased demand in the future? The farmers would not only be in jeopardy but also be getting less than they deserve because of the fixed price. C.) Replace obsolete tractors with more efficient new ones. The idea behind OptionC: replacing obsolete tractors ----leads to---> increase in grain acreage. Big jump in assumption. Efficient tractors NEED not necessarily imply an increase in grain acreage: It may have OTHER effects such as a decrease in production time, higher engine capacity etc. D.) Put marginal land under cultivation and grow grain on it. Perfect! Not only explains but also encompasses all the vital considerations of the quota. ------> Some farmers!

E.) Agree with other farmers on voluntary cutbacks in grain production. We have NO decisive impact of the agreement with other farmers on voluntary cutbacks in grain production. Will they be successful in reducing grain production? Will the farmers agree voluntary? Will the reduced grain production of SOME farmers safeguard the impact on profits? Too many variables moving at once! To answer your query: Option-B talks of FIXING the price. Though Option-B may safeguard the current interest, what if, 1) the acreage selling price INCREASES because of increased demand in the future? OR, - profit from future upward trends in market demand for grain 2) the cost of production INCREASES because of higher seed cost, fertilizers, electricity etc? - the total cost of agricultural inputs for grain cultivation See the color-coded relevant portions of Option-B. The farmers would not only be in jeopardy but also be getting less than they deserve because of the fixed price. Ex: Initially the price: 100 units/acreage The demand increased, raising the price ------> 150 units/acreage. By locking/fixing the price, the farmers would be losing money( 50 units/acreage ) if the price increases.

750300 · Answer

Marginal land definition makes the kill.
 
 Marginal land   is land that is of little agricultural value because crops produced from the area would be worth less than any rent paid for access to the area(wiki).

zoezhuyan · Answer

GMATNinja ,  GMATNinjaTwo ,  VeritasKarishma ,  MartyTargetTestPrep ,  AndrewN ,  VeritasPrepBrian ,  AnthonyRitz ,  CJAnish 
dear experts, I am struggling with A.

IMO, even if a farmer selected a less profitable grain fields, he still have more fields than before, 
say, earlier, he has 10 units, then he selected another 4 units, which is less profitable grain fields, then he has 14 units total,
supposed the percentage is 50%, then he will have 7 units, more than 5 units , the total field when the quota take effect without farmer's selection.

experts, genuinely need your help.

thanks in advance.

AndrewN · Answer

Hello,  zoezhuyan . I think you are overlooking the obvious or perhaps misunderstanding (A). If the quota will    farmers to a certain flat percentage of the grain acreage they cultivated previously , then such a reduction in farmable acreage diminishes the profit potential to the farmer, plain and simple. You are also assuming that a farmer will reseed the less profitable field with more profitable crops  and  get a good yield. When your reasoning is a few steps removed from the linear logic of the passage, it is probably incorrect. I think   nightblade354   offered an excellent analysis of this answer, as well as the others, in  this post  above. Meanwhile, that same linear logic I mentioned dictates that if the government is to reduce the grain acreage per farmer  in the future , then farmers should focus on getting as much land as they can into grain-growing shape  now   to minimize the impact on profits of the grain quota . This is exactly what choice (D) presents, and we do not have to work through one or two extra links to get to a reasonable answer.

I hope that helps. Thank you for thinking to ask me about this one.

- Andrew

MartyTargetTestPrep · Answer

Notice that (A) says nothing about ADDITIONAL FIELDS. All (A) says is that the farmer will SELECT some fields.

The fields that the farmer would "select" are presumably already in use. All the farmer is doing is selecting in advance which fields to retire if the quota takes effect.

Selecting fields in advance won't make any difference. If the quota takes effect, they will be retired, and the farmer's production will decrease, regardless of whether the farmer selects them now or later.

The move here is to be careful not to read into the answer choice something it does not say. The choice says "select." It does not say "add," "plant crops in," "begin to use," or anything along those lines.

AnthonyRitz · Answer

I agree with the things that have been said above. But to pile on with another angle, why should the farmer choose the least profitable fields  now ? Why couldn't the farmer just do that later, when/if the quota is implemented? Wouldn't it be better, in fact, to wait, to see which fields are least profitable  then , in the future, when the quota actually happens?

Reviewing your question, I think you're misreading A. "select" does not mean that the farmer will acquire or gain new fields. It means "choose among what is already present"; A only implies that the farmer will go through their fields and decide in advance which ones to retire. The only answer that implies that the farmer will increase their fields in wheat production is D.

EDIT: MartyTargetTestPrep beat me to this last bit by mere moments. Kudos, Marty!

JonShukhrat · Answer

Hi  zoezhuyan

We both seem to have the same issue with choice A. I had the selfsame reasoning as yours at first reading. I, in the same way, thought that the farmer chooses less profitable field and ADDS it to his more profitable one, which is his main source of income from grain. As a result, he happens to have MORE field than before: less profitable field + more profitable field. And if quota takes effect, he simply gets rid of his less profitable field and saves more profitable one, thereby saving most of his profit from grain.

However, this is a wrong way of thinking. We could think this way if A instead read as:

A. Select in advance currently less profitable  grain  fields and retire them if the quota takes effect.

If A simply said “select less profitable fields…”, then we could assume that the farmer will select less profitable NEW fields that he didn’t use for growing grain before, thereby increasing overall acreage of his grain fields. However, note that A says “select less profitable GRAIN fields and retire them later”. In other words, the farmer already uses these fields for growing grain and hence they are NOT new. They are already a part of a field that he uses. So, he didn’t add anything to the size of his fields.

That’s why you can’t say:

Another important thing to note is that even if you read A in the wrong way, you could eliminate it because D has even less negative impact.

Suppose that you want to “minimize” the impact of quota on your profit that comes from your main more profitable land:

- your main field brings you $100
- new, less profitable fields bring $80
- new, marginal land (very bad land) brings $3.

If you increase your field with less profitable fields, than your loss when quota takes effect is $80, almost half of your income. However, with marginal land your loss would be only $3, about 3 % of your income. Hence, D minimizes the negative impact.

AnthonyRitz · Answer

My main quibble with this logic is that I don't think the question turns on the word "grain." Either way the word "select" does not, in itself, suggest adding any new fields beyond the ones already cultivated by the farmer.

Contrast with how D very explicitly says "put... land under cultivation." It even doubles down with "and grow grain on it," just in case it wasn't already explicit and clear enough.

As for the final thought you shared, it really depends on how we consider "minimize the impact on profits." Under one interpretation, going up from $100 to $180 so that you lose $80 when additional fields are retired is the same as going $100 to $103 and then back to $100 -- you end up at $100 either way. But from another perspective, sure, the "impact" is less. It's hard to say which way to read this, so I'd not aim to rest on such a rationale.

The simplest argument here is just this: "selecting" fields does not inherently imply adding new fields to cultivation, nor does anything else in A suggest this. A does not mean adding new fields. The end.

JonShukhrat · Answer

Dear  AnthonyRitz

Thank you very much for your detailed elucidation. I wish I could see the reason why “select” can’t mean “add” a new field. In both A and D we still do certain assumptions to indentify the right course to minimize the negative impact. Let’s take D:

D) Put marginal land under cultivation and grow grain on it.

Here, we have to assume that the farmer had access to this marginal land. It could very well be part of his fields that he used for other purposes, such as storage or cattle. We also have to assume that he will get rid of exactly this field when the quota takes effect, not all the way around. Similarly, choice A could have a similar meaning without the word “grain”.

A) Select in advance currently less profitable fields and retire them if the quota takes effect.

For your logic to hold, you must be assuming that the farmer grows only grain and uses all his fields only for this purpose. However, the farmer may have different fields for different purposes. That’s so true in my country. The main plant that is grown is usually cotton (yeah, we still have slavery). As soon as cotton is harvested, farmers have choice to grow whatever they want in cotton fields until the next season. Those who have cattle choose wheat or corn. Cattle are usually kept in those fields that are not cultivated or that are planted with crops for several years, and then returned to pasture for the cattle. So, long story short, farmers “can select” which field to grow grain and thereby “add” less profitable field to the main land. Therefore, I don’t see any problem with “select”.

I may be missing something, so your thoughts are welcome and much appreciated.

AnthonyRitz · Answer

We should always assume that premises are true. If D calls for us to "put marginal land under cultivation..." then we must assume that such action is physically possible. Furthermore, we have every reason to expect that "marginal" land would not be in great demand and thus would be likely to be available for use. Even if that land is currently put to some other use (and this is not specified and cannot be assumed), giving up that use in the short term would presumably still maximize the farmer's profits in the longer term, since the marginal lands could revert to other use once the quota is implemented. Beyond that, we simply must assume that the farmer will rationally discontinue these marginal lands, rather than some highly productive parcels, when the quota actually takes effect. Why on earth wouldn't they? This is the entire purpose of farming the marginal lands in the first place. I'm not going to assume otherwise without reason.

Finally, you say that A is the same as D if you ignore the word "grain," and I wholly disagree. You're still reading the word "select" as far more than what it is. I assume nothing about how the farmer uses their land. You said But, again, "select" does not mean adding the field, beginning to grow grain on the field, or doing literally  anything at all  with the field beyond pointing at it and saying, "yeah, that's the field I'm going to retire when the quota hits." Reading A as anything at all more than this is incorrect. From the dictionary:

select - carefully choose as being the best or most suitable; choose (as by fitness or excellence) from a number or group; make a choice

Note that no action beyond mere choosing is expressed here.

mukugmat · Answer

I had the most confusion between A and D. By going through OG solution the following is what I understand.

In choice A, we stop grain production on the land currently used and we start production on less profitable land. That is, replace currently used land with less profitable land. This causes the current profit to go down. If we retire part of this land when the regulation takes effect, then the profit can go further down (unless it is already 0).

In choice D, according to OG solution, we are adding the additional marginal land (although this ("adding" as opposed to switching) is not clear to me). This marginal land is also less profitable. If the profit is negative from marginal land, then the overall current profit could go down. But when the regulation is implemented, we would retire the marginal land and the profit would go back up (as we stop cultivating on land which is making losses).

So it makes sense that D is a better choice. My only issue is the following.

The key difference between A and D is that
--------------in A we are replacing existing land with less profitable land 
--------------in D we are adding marginal land (is also less profitable)

Is this clear to anyone from the choices? If so, could that person please explain this to me here?

Under the agricultural policies of Country R, farmers can sell any gra

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