Sharing the Surplus A farmer works on a plot of land owned by a landlord. The figure below illustrates the feasible combinations of free time and bushels of grain. 100 85 X 25 20 12 14 24 Hours of free time 1. Why does the farmer's feasible frontier slope down? Why is it concave? 2. The farmer's reservation option is a job that pays 20 bushels of grain for 10 hours of work - this option is labeled Z in the figure. What is the name of the curve running through Z? What does this curve illustrate? Why does it have the shape it has? 3. If the landlord knows the farmer's feasible frontier, along with the other curve given in the figure, then they will make the take-it-or-leave-it offer implied by point X in the figure. How does this point relate to the distance between the two curves? How does this point relate to MRS and MRT? 4. What is the (approximate) surplus in bushels under the landlord's take-it- or-leave-it offer? How is the surplus split between the farmer and landlord? 5. Is this allocation efficient? Is it fair? Briefly explain your reasoning. Bushels

Sharing the Surplus A farmer works on a plot of land owned by a landlord. The figure below illustrates the feasible combinations of free time and bushels of grain. 100 85 X 25 20 12 14 24 Hours of free time 1. Why does the farmer's feasible frontier slope down? Why is it concave? 2. The farmer's reservation option is a job that pays 20 bushels of grain for 10 hours of work - this option is labeled Z in the figure. What is the name of the curve running through Z? What does this curve illustrate? Why does it have the shape it has? 3. If the landlord knows the farmer's feasible frontier, along with the other curve given in the figure, then they will make the take-it-or-leave-it offer implied by point X in the figure. How does this point relate to the distance between the two curves? How does this point relate to MRS and MRT? 4. What is the (approximate) surplus in bushels under the landlord's take-it- or-leave-it offer? How is the surplus split between the farmer and landlord? 5. Is this allocation efficient? Is it fair? Briefly explain your reasoning. Bushels

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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