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Q1) Assume you are provided with following production relationships, where input is fertilizer (pounds per acre) and output is rice (cwt per acre). Price of rice is $9.50 per cwt and 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 table illustrating the TPP, APP, MPP, TVP, AVP, MVP, MFC and Total Input Cost at each level of inputs used (Note increase in fertilizer is in 50 pound increments, hence you require to be careful when computing MPP and MVP.)

B. Using graph paper, graph AVP, MVP, and MFC

C. On the graph in B, indicate three stages of production.

D. What is level of fertilizer that maximizes profits? How do you know?

E. How much fertilizer would you use (to maximize profits) if price of fertilizer increased to $0.30 cents per pound (and price of rice is $9.50 per cwt)? Assume selling price of rice increases to $5.50 per cwt (and price of fertilizer is $0.12 per pound). How much fertilizer would you then use to maximize profits?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M922916

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