{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Solution 6

# Solution 6 - FRE/ECON 374 LAND AND RESOURCE ECONOMICS...

This preview shows pages 1–3. Sign up to view the full content.

FRE/ECON 374 LAND AND RESOURCE ECONOMICS Problem Set 6 – Answer Guide – Each Question Worth Potential 10 Points 1. Karine is a landowner in Quebec. She owns two fields and grazes cows on both. Field 1 has a natural pond; in Field 2 Karine must pump in water. The total cost of producing tankers of milk (q) in each field is represented by: TC 1 = 20 + 5q 2 and TC 2 = 50 + 5q 2 . The price of milk is set at p = 40. a) Write down the formulas for average and marginal cost in each field. Plot AC 1 and MC 1 on one diagram and AC 2 and MC 2 on another. AC 1 = 20/q + 5q MC 1 = 10q AC 2 = 50/q + 5q MC 2 = 10q b) Calculate, and show on your diagrams, the quantity Karine will produce in each field. Profit is maximized at p = MC in each field, 40 = 10q, and find q 1 = q 2 = 4. c) Calculate, and show on your diagrams, the Ricardian rent Karine gets from each field. Ricardian rent is p – AC at the quantity produced multiplied by quantity produced; the shaded areas in the diagrams. In Field 1 = (40 – 25) x 4 = 60. In Field 2 = (40 – 32.5) x 4 = 30. p q 40 4 32.5 3.16 AC 2 0 NB. Not to scale MC 2 p q 40 4 25 2 AC 1 0 NB. Not to scale MC 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2. Matt lives in Saskatchewan and grows crops. He can choose to grow wheat or canola. Demand for the crops is represented by: p w = 100 – 10q w and p c = 100 – 10q c . Canola grows well in all types of weather but wheat does poorly in years of drought and a drought occurs 50% of the time. Matt has to decide what to plant before he knows whether there will be a drought or not.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 4

Solution 6 - FRE/ECON 374 LAND AND RESOURCE ECONOMICS...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online