Question

12 points each 1. You are a farmer with the following production function Corn (bu. per day) 0 10 19 27 34 40 45 Workers 0 Workers can be hired for $100/ day. Fixed costs are $50/day. Find and graph your marginal cost schedule. If corn is $15/ bushel, how much corn will you produce? What are your profits? How about if corn falls to $12/bushel? For this case, explain what you will do in both short and long un. 2. A consumer consumes bread and goes to circuses for entertainment. Her i month. The price of a circus ticket is $20. The price of bread is $4/ loaf. Her utility function is logarithmic ( U. In(QC) + In (Ob): utility(U) is the sum of the log of the quantity of circuses attended (Oc) and the log of the quantity of bread consumed (Ob) Remember that, with this uitlity function, the marginal utility of bread will be 1/0b and the marginal utility of a circus will be 1/Qc.) a. Write and graph the budget constraint for this consumer. b. How much of each good will she consume and why, if her goal is to maximize utility? Explain in detail. c. How will her consumption change, and why, if the price of brad increases to $5/ loaf? d. Find and explain the income and substitution effects of the price change. 3. Currently there are many ways in which college education is subsidized by the government. We have examined the argument against subsidies that economists typically make. What is that argument? Explain in detail. Who gains and who loses from the subsidy? Use a well-labeled graph to identify these gains and losses, as well as the net effect of the subsidy.

Answer 1

Use the following formulae to calculate TC, MC, TR, MR, and profit TC = TFC + TVC MC = TC_n-TC_n-1 or change in Technical Componentchange in quantity TR = price times quantity MR = TR_n-TR_n-1 or change TR/change in quantity profit = TR-TC calculation: when price is $15: from the above calculations, it is clear that the firm will produce 34 bushels of output where MR = MC here, the firm is earning the profit of $60.this, means, the firm is earning super normal profits. Thus, the new firms enter into the market until the firm will get the normal profits. Calculation: when price is $12: from the bove calculations it is clear that the firm will produce 19bushles of output where MR = MC here the firm is earning thye loss of $22. This means the firm is earning super losses thus the firms exit from the market until the firm will get the normal profits.