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section5_23Oct08_Exam

# section5_23Oct08_Exam - equation for the derived retail...

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AEM 4150 section 4 23 October, 2008 Below are the supply and demand curves for apples at the farm and retail level: Retail Demand (Dr) (in price dependent form) Pr = 16 – 2Q Farm Supply (Sf) (in price dependent form) Pf = 2Q Marketing Margin (MM) (retail price less farm price) MM = 4 where Pr is the U.S. average retail price per sack, Q is total quantity of sacks marketed (in millions of sacks), Pf is the average price per sack received by apple growers, and MM = Pr – Pf. MM reflects cost of shipping, wholesale, and retail operations. Assume k = 1. Answer the following questions: (a) Graph the retail demand and farm supply curves. Label all curves and axes. (b) Calculate the equation for the derived demand function facing growers (Df) and the equation for the derived retail supply function (Sr). Show your calculations. Plot these
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Unformatted text preview: equation for the derived retail supply function (Sr). Show your calculations. Plot these equations in the diagram. (c) Calculate the equilibrium quantity of apples (Q*) and the equilibrium values of retail price (Pr*) and farm price (Pf*). Show calculations. Identify these values in the diagram. (d) Suppose that due to the high energy cost, transportation costs increase by \$2 per million sacks of apples. (i) Find the new marketing margin equation. (ii) What are the new equilibrium values of Q**, Pr**, and Pf**? (iii) What is the consumers’ share of this burden (transportation cost increase)? What is the farmers’ share of this burden (transportation cost increase)? (e) Now suppose the marketing margin equation is given by: MM = 4 – 0.5Q Find the new equilibrium values of Q***, Pr***, and Pf***....
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