Please help!! Econ- natural resources Differential rents (or Ricardian rents) on
ID: 1141648 • Letter: P
Question
Please help!!
Econ- natural resources
Differential rents (or Ricardian rents) on land are rents that are generated by variations in land fertility .. its naturally occurring productivity. This may be due to differences in the soil's quality, terrain slope, exposure to rain, etc. It can be analysed in much the same way that was done for the case of locational rents. Consider three plots of land, A, B and C, with respective output functions yi = aif(z.), i E {A. B. C}, where xi s the labor input on plot i and oils a fertility parameter such that > QB > ac. Function f is increasing and concave. The unit gate price of the output is the same on all plots and constant throughout. Contrary to our analysis of locational rents, where we assumed a fixed supply of rural labort now account for the fact that workers also have the option to work in the urban sector, such that the total rural labor supply is elastic and represented by function x(w), with x,(w) > 0, where w denotes the rural wage rate a) Assume that land owners act as price takers in the labor market and chose labor in order to maximize rents. Write down the equilibrium conditions for the allocation of rural labor between the three land plots. Provide a graphical characterization of the equilibrium and use it to explain the presence of differential rents. b) Suppose that the higher fertility of plot A is entirely due to a better exposition to rainfall. In order to solve this problem, an irrigation canal is (freely) built by the government such that the new fertili ties of plots B and C, represented by parameters , and Qe, are now both equal to aA. The fertility of plot A is unaffected by the canal. Graphically characterize the effect of the canal in the rural sector and discuss its redistributive impact. Would anyone oppose its building?Explanation / Answer
Marginal analysis involves a cost-versus-benefits comparison of various business activities. In marginal analysis, the cost of an activity is measured against incremental changes in volume to determine how the overall change in cost will affect the bottom line of a business. Marginal analysis can show the cost of additional production by a business all the way up to the break-even point. This is generally the maximum cost that a business can sustain without losing money.