Land Rent and Corn Production: A Tale of Mr. Greengene and Lauren

a. When will Mr. Greengene's rent increase by $300 per hectare?

Answer: A) the cost of production of Mr. Greengene's falls by $300 or more

b. When will Mr. Greengene's rent be unchanged?

Answer: B) there is no change in the cost of production

Explanation:

The story of Mr. Greengene and Lauren's land rent agreement highlights the impact of a new method for growing corn on rent prices. Initially, Mr. Greengene rented land from Lauren for $500 per hectare to grow corn. However, with the development of a new method that decreases the growing cost by $300 per hectare, Lauren sees an opportunity to increase the rent to $800.

a) The leftover principle, which states that land rent equals the excess of total revenue over nonland costs, comes into play here. Since Mr. Greengene's initial rent is fixed at $500, Lauren will increase the rent by $300 per hectare if the cost of production of Mr. Greengene's falls by $300 or more. This is a direct result of the efficiency brought by the new growing method.

b) If there is no change in the cost of production, there will be no basis for Lauren to increase the rent to $800. In this scenario, Mr. Greengene's rent will remain unchanged at $500 per hectare. Lauren risks losing Mr. Greengene as a tenant if she decides to increase the rent without a decrease in production costs, as Mr. Greengene could simply rent land elsewhere. Therefore, in the absence of a decrease in production costs, Mr. Greengene's rent will not be affected.