ECO333H1 Lecture Notes - Lecture 1: Hectare
Document Summary
Reading: introductory notes on rectangular land market model . Endogenous (determined in the model) variables to be derived: r(x): manufacturing rent function, b: total output of all firms in model, xa: boundary between manufacturing land and agricultural land. Zero economic profit equilibrium condition (no more profit than you need in order to stay in business: no monopoly) For each firm: total revenue = total cost [doesn"t mean no profit, it means they earn just enough profit to stay in business] Eq1: r(x)=[pb-nlpc]/l-[tb/l]*x=[50*5-130]/2-[4*5/2]x=60-10x, then y-intercept in figure 1 is. Manufacturing land area =y*xa=2*4=8sq*km=800 ha (1 hectare = 100m*100m) Sub eq2 into eq3 (sub xa) and set mc=p: Graph: y-axis p, x-axis b, upward sloping ss (supply function) with p0=y-intercept=nlpc/b+[l*ra]/b, horizontal dd (demand function) p=50. Sub in eq4: p=50=34+0. 008b1, then b1=2000 (b1 with ss) Ss": p=34+0. 016b (y=1) twice the slope as ss. B2 satisfies p=50=34+0. 016b2, then b2=1000 (b2 with ss")
