Posted: August 16th, 2016

Calculate the equilibrium price and equilibrium quantity of corn in the two markets if the two markets are spatially separated and commodity flow does not occur between them.

4 A farm operator in Alberta has asked you to help him/her determine the quantity of water that should be applied to a crop under irrigation. The crop is being irrigated via a sprinkler system that can be regulated in terms of the number of times per day that water is applied. The total physical product (TPP) for the crop is shown below for different application rates per day. Note that the same amount of water is delivered at each application and that the crop currently sells for $ 2.10 per bushel.
5

Number of Application per Day Total Physical Product(bushels/acre)

0
1
2
3
4
142
152
160
165
166

a. Graph the farmer’s demand curve for water
b. If each application of water costs $19 per acre determine the number of application of water per day that will yield maximum profits.
c. If the price of water increases to $22 per application, determine the number of applications that should now be made per day.
d. What impact does a change in the price of water have on water demand?

6 Corn is produced in two regions, Region A and Region B. The supply and demand for corn in the two regions is as follows:

Region A Region B
Supply: P= 400+ Q
Demand: P=700 – Q Supply: P=500+Q
Demand: P=800-Q

a. Graph these two markets side by side.

b. Calculate the equilibrium price and equilibrium quantity of corn in the two markets if the two markets are spatially separated and commodity flow does not occur between them.

c. What is the maximum transportation cost that middlemen of marketing will accept before they agree to move the corn between the two regions? What will the direction of the movement be?

d. If Region A and Region B were two countries, determine the export supply and the import demand curves that are implied by the above supply and demand conditions. If trade is allowed between the two countries what will the world price be if we assume that there are no transportation costs? How much of the corn will be traded?