Suppose that the annual production function for barley farms on the front range

Question

Suppose that the annual production function for barley farms on the front range of the Rockies is yd = (d Ld) Ld. for d = 1. 2. 3. 4. 5. 6. 7. 8. where d is the distance in kilometers each farn is from the Rockies, and where Ld is the number of workers hired on a farm at distance d. (Assume that after 8 km out, it becomes desert, so nothing grows.) The wage rate is w4: the price of barley is p-1. (a) Find the number of workers hired by each farm. d-1. . . . . 8. Which farms. if any, hire no workers? Explain. Hint: Set VMP(4) = u, to find workers per farm. La- 11 mark] b) Using the value of the average product function V AP(L), the wage rate, w, and the number of workers hired. , find the rental value Rd for each farm that operates. [1 mark] (c) If the land were to be given away for free by the government to the first to stake a claim, what is the maximum you would pay for the fastest horse available? Assume an interest rate of r = 0.1 (10%) in calculting the price of farm as P,-Rd/r, d-1. . . . . 8. [1 mark]

Explanation / Answer

In economics, a production function relates quantities of physical output of a production process to quantities of physical inputs or production function refers as the expression of the technological relation between physical inputs and outputs of the goods. The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, a key focus of economics. The primary purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution of income to those factors, while abstracting away from the technological problems of achieving technical efficiency, as an engineer or professional manager might understand it.

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