Suppose you are provided with the following production relationships, where the input is fertilizer (pounds per acre) and the output is rice (cwt per acre). The price of rice is $9.50 per cwt and the price of fertilizer is $0.12 per pound.
|
Fertilizer (pounds per acre)
|
Soybeans (cwt per acre)
|
|
0
|
0
|
|
50
|
8
|
|
100
|
18
|
|
150
|
32
|
|
200
|
48
|
|
250
|
58
|
|
300
|
65
|
|
350
|
70
|
|
400
|
73
|
|
450
|
75
|
|
500
|
76
|
|
550
|
72
|
|
600
|
64
|
A. Build a table showing the TPP, APP, MPP, TVP, AVP, MVP, MFC and Total Input Cost at each level of inputs used (Note the increase in fertilizer is in 50 pound increments, thus you need to be careful when calculating MPP and MVP.)
B. Using graph paper, please graph AVP, MVP, and MFC
C. On the graph in B, please indicate the three stages of production.
D. What is the level of fertilizer that maximizes profits? How do you know?
E. How much fertilizer would you use (to maximize profits) if the price of fertilizer increased to $0.30 cents per pound (and the price of rice is $9.50 per cwt)? Suppose the selling price of rice increases to $5.50 per cwt (and the price of fertilizer is $0.12 per pound). How much fertilizer would you then use to maximize profits?