ps3 - Department of Agricultural and Resource Economics...

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Department of Agricultural and Resource Economics EEP 101/ECON 125 University of California at Berkeley David Zilberman PROBLEM SET 3 1. Apples are produced with fertilizers. Let: Y = output per acre X = fertilizers Y = AX il a il is the input use efficiency of fertilizers, where i is a technology parameter and l is the location coefficient. There are two technologies: traditional with i = 0 and modern with i = 1. There are two locations: lP = at poor land and lG = at good land. aa 00 11 48 PG == .. Suppose A = 10 Output price = $2.00 per unit Fertilizer price = $1.00 per unit a. Find optimal input use under all technologies. b. If adoption of the modern technology requires a fixed cost of $40, will it be adopted? by whom? c. Suppose each unit of residue 1 - () il x il generates $5.00 worth of damage and a pollution-pay principle is applied. How will it affect i. Optimal fertilizer use? ii. Adoption? 2. Suppose there are two types of fish—edible and ecological. The marginal benefit of each edible fish consumed is 20 - .5 x . Fish can be caught by two methods: (1)
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ps3 - Department of Agricultural and Resource Economics...

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