101-11_07

# 101-11_07 - Econ 101 Lecture 11 Example 11.1 How should...

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Econ 101 Lecture 11 Example 11.1. How should Leroy divide his time between picking apples and writing pulp fiction? A men's magazine will pay Leroy 10 cents per word to write fiction articles. He must decide how to divide his time between writing fiction, which he can do at a constant rate of 200 words per hour, and harvesting apples from the trees growing on his land, a task only he can perform. His return from harvesting apples depends on both the price of apples and the quantity of them he harvests. Earnings aside, Leroy is indifferent between the two tasks. The amount of apples he can harvest depends, as shown in the table below, on the number of hours he devotes to this activity: Hours Total bushels Additional bushels 8 1 8 4 2 12 3 3 15 2 4 17 1 5 18 For each hour Leroy spends picking apples, he loses the \$20 he could have earned writing pulp fiction. He should thus spend an additional hour picking as long as he will add at least \$20 worth of apples to his total harvest. For example, if apples sell for \$2.50 per bushel, Leroy would earn \$20 for the first hour he spent picking apples, but would earn only an additional \$10 if he spent a second hour. Thus, at a price of \$2.50 per bushel, Leroy would allocate 1 hour to picking apples, during which time he will harvest 8 bushels. If the price of apples then rose to \$5 per bushel, it would pay Leroy to devote a second hour to picking, which would mean a total of 12 bushels of apples. Once the price of apples reached \$6.67 per bushel, he would devote a third hour to picking apples, for a total of 15 bushels. If the price rose to \$10 per bushel, he would pick for four hours and get 17 bushels. And, finally, once the price of apples reached \$20 per bushel, Leroy would supply five hours of apple-picking services, and would harvest 18 bushels of apples. Leroy's individual supply curve for apples relates the amount of apples he is willing to supply at various prices. Hours

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## This note was uploaded on 03/27/2008 for the course ECON 1110 taught by Professor Wissink during the Spring '06 term at Cornell.

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101-11_07 - Econ 101 Lecture 11 Example 11.1 How should...

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