Suppose there are two uses of land. Beef is produced from cattle according to th

Question

Suppose there are two uses of land. Beef is produced from cattle according to the production function b-min(A,L) and wool is p where L is labor and A is land. Suppose that the price of beef is p, and the price of wool is pw. Let ri(r), i = b, w denote the rental value of land to each use; let m denote the price of labor; and let t denote the cost per unit production per unit distance to ship either to market. Thus the received price is pb - tr to a beef producer and pu -tr to a wool producer when located distance r from the market. from sheep according to the production w 2 x min A, L/3, (a) Derive the bid-rent curves for land by beef r(x) and for wool (x) mark (b) Suppose 1 and 3 andt1. How high does the price of wool have to be in order that there is a positive level of wool production? Explain. mark] the area used for wool and for beef and show these on a graph. [1 mark] affects the use of land in beef and in wool, as well as the total amount of land in production of (c) Suppose the price of wool is Pw 3. Does that satisfy the criteria you found in part (c)?] Find (d) Suppose the equilibrium is as given in part (c). Show how a decrease in transport costs, to t 1/2, beef or wool. mark

Explanation / Answer

an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come.[1] The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.[2]

There are infinitely many indifference curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map.

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