Answer all questions 1. According to U.S. Department of Agriculture economist Ka

Question

Answer all questions

1.

According to U.S. Department of Agriculture economist Karl Fox, "An increase of 10 percent in the farm price of the "average" food product would be associated something like a 4 percent increase in the retail price and perhaps a 2 percent decreases in per capita consumption."

Elasticity at farm level = 2/10 = 0.2

Elasticity at Retail Level = 2/ 4 =0.5

a. Is the price elasticity of demand different at the farm level than at the retail level? Why?

b. What are the respective elasticity coefficient?

2.

Given the data in the table A below, complete the labor demand schedule in table B.

Please show all your work, nearly, in deriving the labor demand schedule.

Contrast this schedule to the value of marginal product (VMP) schedule that would exist given this data.

Explain why the labor demand and the VMP schedules differ.

Graph the data to help show your answers.

Table A

Total

$1

Table B: Labor Demand Schedule

Labor

Total

product Inputs product price 0 0 $1.10 1 17

$1

2 32 $0.90 3 45 $0.80 4 55 $0.70 5 62 $0.65 6 68 $0.60

Explanation / Answer

(1)

(a) When number of available substitutes increases, elasticity of demand increases as well. When retail price of a good increases, consumers can quickly switch to many of the substitutes that are available. But at a farm level (higher in the value chain), number of substitutes is much low. Therefore, a price change elicits much lower response at a farm level, resulting in a lower elasticity.

(b) Elasticity coefficient = % change in quantity for 1% change in price

Farm level: 2% / 10% = 0.20

Retail level: 4% / 10% = 040

Note: Out of 2 questions the first question is answered.

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