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Economic Analysis of a Small Farm in Alberta

1. The data below show the relationship between number of workers hired and cost and revenue for a small, competitive farm in Alberta.

 Number of workers Wage Price Output Marginal product of labour Value of marginal product of labour Marginal profit 0 \$170 \$5 0 1 \$170 \$5 70 2 \$170 \$5 130 3 \$170 \$5 180 4 \$170 \$5 220 5 \$170 \$5 245

a. Complete the columns of marginal product of labour, value of marginal product of labour, and marginal profit.

b. If the farm above decided to maximize its profit, how many workers would it hire? Explain your answer.

c. Given the results from question (b) above, let’s assume the above farm has now a fixed cost of \$10, and labour is the only variable factor. What is the farm’s profit? Show your calculation.

d. At what point do diminishing returns set in for the farm above? Explain.

2. a. Describe the process by which the market for capital and the market for land reach equilibrium. As part of your description, elaborate on the role of the stock of the resource versus the flow of services from the resource.

b. When we consider all factors of production, such as labour, capital, and land, how can we find the market equilibrium? How do the changes of supply of one factor of production affect the use of other factors of production?

c. In 2014, the dangerous Ebola virus entered Canada when a Canadian resident returned to Canada after contracting the virus while visiting Liberia. Suppose this virus had not been contained and had spread to the general population. Describe the resulting effect on labour productivity. (Assume that the virus is lethal in half of the people who are exposed to it.)