A chicken grows heavier in terms of saleable weight of ready to cook boneless meat from the day the fertilized egg begins be incubated by a hen (or in an electric incubator) until it is hatched and then until about one year of age before the chicken reaches maximum weight. The chicken grows rapidly for several weeks, and then daily weight gain is less each day until it plateaus (daily gain is zero regardless of feeding volume) at about the one-year mark. Over that time, the farmer must pay up front for the fertilized eggs that are incubated (by feeding and sheltering the brood hen or by paying for an incubator (capital equipment) and the electricity to heat it.   After the chick hatches, the farmer must provide feed, water and shelter to the chicken until it is taken to the processing plant where the farmer sells the chicken and finally receives a payment that provides her some personal net income after deducting the costs incurred to that point.

The farmer can choose to tend one chicken or many, but the farmer can never keep so many chickens that her decision insolation about flock size affects the market price at the processing plant. Her costs during a growing season vary directly with the number of chickens kept based on constant returns to scale. The processing plants are numerous, nearby, and they are competitive buyers of live chickens.   

Until the date of sale, assume that the farmer pays for the original cost of the eggs, the feed for the brood-hen or the electricity for the incubator, feed and all other costs by charging the expenses on her credit card, which allows her to carry an unpaid balance for up to 18 months with no monthly minimum payment, but it charges an interest rate on the outstanding balance that compounds daily. The credit card bank is a competitive market lender, and the credit card interest rate varies daily depending on financial market conditions. The farmer herself must eat and incur other living expenses up until the day that the chickens are sold at the processing plant, and she adds those costs to her credit card balance as well.   

When she sells the chickens, the revenue that she receives goes immediately to pay off her credit card balance with accumulated compounded interest.   Hopefully, there will be some amount left over which may reward her for her hard work above the amount of personal consumption that she has charge to the account while waiting to be paid.

1. Analyze how changes in the interest rate charged by the credit card bank affects the age and weight at which the farmer sells her chickens and how it affects her standard of living.
2. If the chicken farmer has the alternative of working for a fixed hourly wage at a nearby textile mill for as many hours per day as she chooses and for which she is paid cash daily, how does variation in the credit card interest rate affect her choice between hours working in the mill versus hours tending chickens? Assume that the size of the chicken flock that she can manage varies directly with hours devoted exclusively to chicken flock management.
3. The interest rate that her credit card bank charges for unpaid balances is directly related to the interest rate that the central bank monetary authority pays to commercial banks for their reserve deposit balances, the rate of interest paid on government bonds or similar debt instruments. If all chicken farmers face the same production costs, credit card terms, and wage labor alternatives, how do changes in the monetary policies of the central bank and the fiscal policies of the government (e.g., budget deficit) impact the price of ready to cook boneless chicken and the economic welfare of chicken farmers and of chicken consumers?

Answer rating: 100% (QA)

1 Interest rate is the charge paid to the provider of credit which can be a bank or a moneylender for the favoured of acquiring the assets An adjustment in loan fee influences the measure of expensein... View the full answer