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##### Suppose that a honey farm

**Description**

solution

**Question**

(i) Suppose that a honey farm is located next to an apple orchard and each acts as a competitive firm. Let the amount of apples produced be measured by A and the amount of honey produced be measured by H. The cost functions of the two firms are as follows;cH(H) = H^2/100, and;cA(A) = A^2/100 ? H.;The price of honey is $2 per unit and the price of apples is $3 per unit.;a. What will each firm produce if both firms operate independently of each other?;b. Suppose now that the honey farm and apple orchard merged. What is the profit maximising quantity of honey and apples for the combined firm?;c. What is the socially efficient output of honey?;d. If the honey farm and apple orchard stayed as separate operations, what would have to happen to honey production in order to induce an efficient supply? Explain your answer

Paper#28486 | Written in 18-Jul-2015

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