Econ 471 Practice Questions

# Econ 471 Practice Questions - UBC Department of Economics...

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UBC Department of Economics ECON 471 Sample Questions for Topic 1-3(a): 1. Suppose that the production of wheat in a fixed-size parcel of land is given by Y = 4L 0.5 where L is the amount of labor devoted to farming. (a) Taking market price of wheat, P, and the wage rate of labor, W, as given, solve for the profit-maximizing choice of L and Y if the field is privately owned. What is the rent (profits) generated by the field? (b) Solve for the open access level of L and Y. (Hint: the profits (rent) under open access regime is zero). (c) Illustrates the open access and private property equilibrium in a diagram. 2. Suppose that there are N number of identical farmers and one open access field. Each farmer supplies L units of labor for the total supply of NL. The opportunity cost of labor is w. Total harvest Q = (NL) 0.5 Under open access, each laborer gets the average return to their labor. (a) Set up the objective of each farmer (maximization problem). (b) Determine each farmer’s optimal choice of labor. (c) Assume that N , in this case what is the optimal input of labor of each farmer? (d) Let N = 1. What is the optimal input of labor of each farmer. (e) Explain the differences between the solutions (c) and (d). 3. A water source in B.C. can supply only 20 units of water/month. There are

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## Econ 471 Practice Questions - UBC Department of Economics...

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