TERM PAPER ASSIGNMENT

Student Name: Nguyen Thi Minh Chi - M 10122033

Instructor: Dr. Rebecca H. Chung

Due Date: 12rd April 2013

Department of Tropical Agriculture and International Cooperation National Pingtung University of Science and Technology

Chapter 7

3. In Table 7-3, what would the profit-maximizing input level be if the input price was $0? Notice the TPP and MPP at this point. What would be true about TPP and MPP at this point?

Input Level| Nitrogen applied (lbs)| Total physical product (TTP) (bu)| Marginal physical product (MPP)| Marginal value product (MVP)=P1*MPP| Marginal value product (MIP)=P2| 0| 0| 130| | | |

1| 25| 148| 18| 63| 0|

2| 50| 162| 14| 49| 0|

3| 75| 170| 8| 28| 0|

4| 100| 177| 7| 24.5| 0|

5| 125| 180| 3| 10.5| 0|

6| 150| 182| 2| 7| 0|

7| 175| 183| 1| 3.5| 0|

8| 200| 183| 0| 0| 0|

P1| Corn Price =$| 3.5| | | |

P2| Nitrogen price= $| 0| | | |

Applying the MVP=MIC rule to find the profit- maximizing output. With an input price of $0, MIC is $0, the optimum input is 8 (MVP is still above MIC but using 9 units of input violates the rule) which will produce 183 units of output. This is the maximum output possible given this production function, that is, TPP is maximum and MPP is the smallest it gets before going negative. Only at an input price of $0 can we be sure the profit maximizing point is where output is maximum.

4. How does the law of diminishing returns cause MC to increase? The formula for MC can be expanded and rearranged into the following relationship: MC=∆ total input cost∆ total physical product (MPP)=Input PriceMPP (Input price is constant)

For a given input price, it is easy to see that MC is inversely related to MPP. If MPP is decreasing as the law of diminishing returns dictates, MC will be increasing.

6. Does the equal marginal principle apply to personal decisions when you have limited income and time? How do you allocate a limited amount of study time when faced with three exams on the same day? With many and competing uses for both time and money, we all have a need to continually apply the equal marginal principle. It is useful in personal lives as well as business. It can also be applied to the problem of three exams in one day. For student, the usual goal is to maximize the average grade point from courses rather than to necessarily maximize the grade in any single course at the expense of other course grades. Time spent studying for each exam will depend on a number of factors including: a) The grading system being used (on a straight 4.0 system, a B- counts the same as a B+), b) The current grade in each course,

c) The effort it would take to maintain or raise the grade in each course, d) The chances of lowering the current grade, and

e) The credit hours for each course (would you spend as much of your limited time studying for a 1 hour course as for a 4-hour course?)

Chapter 8

1. First double and then halve both prices used in Table 8-1 and find the new least-cost input combination in each case. Why is there no change? But what would happen to profit in each case?

Feed ration| Grain (lbs)| Hay (bu)| Input substitution ratio| Input price ratio| Total cost of ration| A| 1650| 2700| | | 103.50|

B| 1800| 2260| 2.93| 1.5| 99.20|

C| 1950| 1870| 2.60| 1.5| 95.90|

D| 2100| 1540| 2.20| 1.5| 93.80|

E| 2250| 1250| 1.93| 1.5| 92.50|

F| 2400| 1050| 1.33| 1.5| 93.00|

G| 2550| 890| 1.07| 1.5| 94.30|

P1_grain/pound| 0.03| | | |

P2_hay/pound| 0.02| | | |

Both doubling and halving the prices leave the input price ratio unchanged and therefore the input substitution ratio will equal the input price ratio at the original combination, feed ration E. The point of this question is to emphasize that it is the relative relationship...