Consider the following stylized facts: Sugar is derived from two agricultural products grown in the US, sugar cane and sugar beet. Sugar cane grows only in certain areas (mostly Hawaii and Louisiana). Suppose that there are only 20 plantations capable of growing sugar cane, and that each plantation can produce up to 5 pounds of sugar per day, at a cost of $0.05 per pound. Assume that there are no fixed costs for producing sugar from sugar cane, so the (constant) marginal cost is also the average cost. There are 100 identical potential sugar beet farms, each with daily variable costs of production (in dollars) of q2 -0.9q, and a fixed cost of $1 per day. In addition, the government will give each sugar beet farmer a subsidy of $1.00 for every pound of sugar produced on a given day.

(a) What is the short run supply curve for a single sugar cane plantation? What is the short run supply curve for a single sugar beet farm? What is the industry supply curve for sugar?

(b) Daily demand for sugar in the US is given by QD=109-100p, where p is the price per pound of sugar. What is the market price for a pound of sugar? What are the profits of cane growers? of beet growers? How expensive is the subsidy program (i.e., what is the sum total of all subsidy payments to beet farmers)?

(c) Suppose that US demand for sugar increases to QD=240-100p. What is the new market price for a pound of sugar? What are the profits for each type of farmer? How expensive is the subsidy program now?