Incomes for farmers are fairly low to begin with and added output would only lower their incomes even more. If Shandong is producing at AS2 and a neighboring jurisdiction helps increase regional output to AS then income for farmers would then drastically fall leading to many Shandong farmers to be unable to pay back loans to their banks.
While Consumers receive a windfall from added supply and lower prices, farmers on the other hand are suffering from a financial recession. In order to better reward farmers and consumers alike, the government needs to intervene by giving farmers fair price for their grain while still keeping prices reasonable for consumers.
Thus you need to determine how much grain you want to grow. Is it 800 million tons per year? 1 billion tons a year? And estimate how much you would need to increase prices for farmers in order to give them the incentive to produce 1 billion tons per year.
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