Economics 100 - Minnesota State University Moorhead
Econ 390
Land Economics
Econ 202 style
Part I
The production function shows the relationship (a mathematical equation) between the amount of inputs and the amount of output produced. Our focus will be on the land-output relationship for a given level of capital and labor.
N. P. Maplewood is a farmer with one tractor. The amount of land will determine how much she can harvest.
The data in the table below represents possible daily output of soybeans for various combinations of the variable output (land) with the two fixed resources (labor (herself) and capital(the tractor)).
|Units of the Variable |Units of the Fixed Factor |Total Product |Marginal Product |Average Product |
|Factor |(Labor & Capital) |(TP) |(MP) |(AP) |
|(Land) | | | | |
|0 |2 |0 |-- | |
|1 |2 |2 | | |
|2 |2 |7 | | |
|3 |2 |15 | | |
|4 |2 |25 | | |
|5 |2 |40 | | |
|6 |2 |50 | | |
|7 |2 |58 | | |
|8 |2 |63 | | |
|9 |2 |65 | | |
|10 |2 |66 | | |
Complete the table.
Base on the table on page 1, graph the short-run production function, the relationship between output and land, in the top graph and both the marginal and average products of labor in the bottom graph.
Production Function
| | |
(thousands of soybeans per week) (millions if soybeans per week)
A. Plot on diagram B the current market supply curve for soybeans and label this curve “S”. (Ask how much each producer will supply at the various prices, and figure how much the total supply from all thousand producers together will be at those prices. Note one million is a thousand thousand.)
B. Place a dot at the minimum of the average total cost and the average variable cost. Remember that those points represent the minimum level and if we are not at those points the average cost **must** be greater than the minimum. This is important later when you are asked to approximate prices.
C. Shade in the appropriate profit (or loss) in diagram A, and calculate the total amount of economic profit or loss each typical soybean producer will make under those conditions. Fill in the blanks below to aid in your calculation.
Price (P) received by each Soybean producer $_____________
Quantity (Q) produced by each Soybean producer: _______ thousand Soybeans.
Average total cost (ATC) for this quantity (approximate): $________ per Soybean.
Total revenue for each Soybean producer: $_____________
Total cost for each Soybean producer: $______________
Total profit for each Soybean producer: $______________
D. Based on your last answer, is the Soybean market in long-run equilibrium? Why or why not?
E. What is the long run equilibrium price in this market? $________ per Soybean
How many Soybeans will each firm produce at this price? _________ thousand Soybeans per week.
How many firms will be in the market at this price? __________
Part II
Now, let us start over again with a new set of cost and demand conditions in the Soybean market. We start again with one thousand producers of Soybeans, each with economic costs list those shown in diagram A below. The market demand for Soybeans, however, has changed and is shown in diagram B below.
A. Cost Situation for B. Market Supply and
Each Soybean Producer Demand for Soybeans
|[pic] | |
| |[pic] |
(thousands of soybeans per week) (millions if soybeans per week)
A. Plot on diagram B the current market supply curve for soybeans and label this curve “S”. (Ask how much each producer will supply at the various prices, and figure how much the total supply from all thousand producers together will be at those prices. Note one million is a thousand thousand.)
B. Place a dot at the minimum of the average total cost and the average variable cost. Remember that those points represent the minimum level and if we are not at those points the average cost **must** be greater than the minimum. This is important later when you are asked to approximate prices.
C. Shade in the appropriate profit (or loss) in diagram A, and calculate the total amount of economic profit or loss each typical soybean producer will make under those conditions. Fill in the blanks below to aid in your calculation.
Price (P) received by each Soybean producer $_____________
Quantity (Q) produced by each Soybean producer: _______ thousand Soybeans.
Average total cost (ATC) for this quantity (approximate): $________ per Soybean.
Total revenue for each Soybean producer: $_____________
Total cost for each Soybean producer: $______________
Total profit for each Soybean producer: $______________
D. Based on your last answer, is the Soybean market in long-run equilibrium? Why or why not?
E. What is the long run equilibrium price in this market? $________ per Soybean
How many Soybeans will each firm produce at this price? _________ thousand Soybeans per week.
How many firms will be in the market at this price? __________
-----------------------
70
60
50
40
30
20
10
14
12
10
8
6
4
2
300
200
100
20
Costs
10
20
10
300
200
100
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