kf006 - PerfectlyCompetitiveSupply: TheCostSideofTheMarket...

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1 Ka-fu Wong University of Hong Kong Perfectly Competitive Supply:   The Cost Side of The Market
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2 Example: The Holiday Store at Tung Lung Island Why does the store open only on holidays?
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3 Example 6.1.   How should Leroy divide  his time between… …picking apples… …and writing pulp fiction? Note:  Pulp magazines  (or  pulp fiction ; often referred to as “the pulps”) were inexpensive fiction  magazines. They were widely published from the 1920s through the 1950s. The term  pulp fiction  can  also refer to mass market paperbacks since the 1950s. (from  Wikipedia )
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4 Example 6.1.   How should Leroy divide  his time between… 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 apples he harvests. The optimal number of hours spent picking apples? 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.
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5 Example 6.1.   How should Leroy divide  his time between… Earnings aside, Leroy is indifferent between the two  tasks.   The amount of apples he can harvest depends on the  number of hours he devotes to this activity: Hours Total bushels Additional bushels 1 8 8 2 12 4 3 15 3 4 17 2 5 18 1
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6 Example 6.1.   How should Leroy divide  his time between… For example, if apples sell for $2.50 per bushel: Hours Total bushels Additional bushels 1 8 8 2 12 4 3 15 3 4 17 2 5 18 1 $ for the additional  hour 20 = 8x2.5 10 = 4x2.5 7.5 = 3x2.5 5 = 2x2.5 2.5 = 1x2.5 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.  Leroy will devote only the first hour to picking apples.  That is, a total  of 8 bushels of apples.
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7 Example 6.1.   How should Leroy divide  his time between… If the price of apples then rose to $5 per bushel:  Hours Total bushels Additional bushels 1 8 8 2 12 4 3 15 3 4 17 2 5 18 1 $ for the additional  hour 40 = 8x5 20 = 4x5 15 = 3x5 10 = 2x5 5 = 1x5 It would pay Leroy to devote a second hour to picking, which would  mean a total of 12 bushels of apples.
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8 Example 6.1.   How should Leroy divide  his time between… Once the price of apples reached $6.67 per bushel
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kf006 - PerfectlyCompetitiveSupply: TheCostSideofTheMarket...

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