Question

Ricardian Corn Theory of Rent

Assume that there are parcels of land with three levels of fertility. There are 300 acres of quality 1 land that produces 200 bushels of corn per acre with one dose of labor-capital. There are 200 acres of quality 2 land that produces 150 bushels of corn per acres with one dose of labor capital. There are 100 acres of land of quality 3, which produces 100 bushels of corn per acre with one dose of labor capital. Assume that only one dose of labor-capital can be applied to each acre of land. One dose of labor-capital includes 1 worker working for a year. The subsistence level of consumption for a worker is 75 bushels of corn per year.

Now assume that population is such that 75,000 bushels of corn are required.

In the simplest case, what will be the distribution of value of the bushels of corn (i.e., how many bushel equivalents do the landlords, capitalists, and workers receive)?

Answer 1

Solution :

Quality 1 Land parcel :

Maximum bushels that can pe produced = 300 acre * 200 bussels per acre = 60000 bushels corn

Labor required = 300 labor capital

Hence, Consumption by Labor = 300 * 75 bushels = 22500 bushels

Quality 2 Land parcel :

Maximum bushels that can pe produced = 200 acre * 150 bushels per acre = 30000 bushels corn

Labor required = 200 labor capital

Hence, consumption by Labor = 200 * 75 bushels = 15000 bushels

Quality 3 Land parcel :

Maximum bushels that can pe produced = 100 acre * 100 bushels per acre = 10000 bushels corn

Labor required = 100 labor capital

Hence, consumption by Labor = 100 * 75 bushels = 7500 bushels.

Now for total production of 75000 bushels corn :

Optimal solution will be Full quality 1 parcel and half of quality 2 land parcel.

Hence quaity 1 landlord will produce = 60000 bushels

quality 2 landlord will produce = 15000 bushels

Total consumption by workforce = 37500 + (15000/2) = 45000 bushels.