ARME608 MID TERM EXAM 1998 - 3. Given the two conditional...


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ARME 608 First Exam Fall 1998 1. For the following production function, derive the demand functions, supply function, and the profit function. 5 . 2 5 . 1 4 2 x x y + = Then show the homogeneity of these functions in output and input prices. 2. An agri-business firm operates two plants to manufacture nitrogen fertilizer. Both plants have u-shaped short-run average cost curves but the average cost curve of one plant is lower than the average cost curve of the second plant at any output level. Explain graphically how the agri-business firm should allocate production between the two plants to produce a fixed amount of nitrogen fertilizer.
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Unformatted text preview: 3. Given the two conditional demand (cost minimization) functions below, solve for the supply function for output for a profit maximization firm. 2 1 1 2 2 * 1 ) ( 2 1 r r y x = 2 1 2 1 2 * 2 ) ( 2 1 r r y x = 4. An agricultural input has been imported but with import quota restrictions (quantity). Farmers have been using this input to maximize revenue. The ministry of agriculture has asked you to determine how much of this input would be used if the quota is lifted and farmers use the quantity of this input that maximizes profit. How could you do this analysis?...
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