Imagine you have a farm with three plots of land. There is one in the valley,...

Imagine you have a farm with three plots of land. There is one in the valley, one on the hill and one in the swamp. Each plot can either grow corn or wheat. Assume that planting, harvesting, etc. is free. The quantity of each crop on each plot is given by the following table.

Plot Corn Wheat

Valley 200 300

Hill 150 450

Swamp 100 100

a. Draw a PPF for your farm. Indicate all slopes and intercepts.

b. If the price of corn is $5/unit and the price of wheat is $2/unit, what should you produce on each plot in order to maximize revenue? (We haven't said the word "revenue" yet but it means the total market value of the crops.)

c. If the price of corn is $2.50 and the price of wheat is $2, what do you want to produce on each plot?

Expert Solution

a. production possibility frontier is the different combinations in which the two crops can be produced. For instance, Corn in Plot and Valley and Wheat in Swamp, and so on. Let's tabulate them and then plot the PPF.

Corn in	Wheat in	Qty of Corn	Qty of Wheat
All 3	None	450	0
Valley, Hill	Swamp	350	100
Valley	Hill, Swamp	200	550
Hill	Valley, Swamp	150	400
Swamp	Valley, Hill	100	750
None	All 3	0	850

b. Pls see table below

					Qty * Price	Qty * Price
Plot	Quantity of Corn	Quantity of Wheat	Price of Corn	Price of Wheat	Revenue from Corn	Revenue from Wheat	Higher of the two	We will produce
Valley	200	300	5	2	1000	600	1000	Corn
Hill	150	450	5	2	750	900	900	Wheat
Swamp	100	100	5	2	500	200	500	Corn

c. Pls see table below

					Qty * Price	Qty * Price
Plot	Quantity of Corn	Quantity of Wheat	Price of Corn	Price of Wheat	Revenue from Corn	Revenue from Wheat	Higher of the two	We will produce
Valley	200	300	2.5	2	500	600	600	Wheat
Hill	150	450	2.5	2	375	900	900	Wheat
Swamp	100	100	2.5	2	250	200	250	Corn

Rahul Sunny answered 2 years ago

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