06 Question 16 points) Clara's Corral is a horse farm that operates in a competitive market with the following cost function for horse rides. H: (H) - Annie's Artichokes recently opened on a neighboring property, in part because Ciara gives her the manure she needs for fertilizer for free. Annie's costs of producing a kilo of artichokes. A are (A) - H. The market for artichokes is also competitive. The price of a horse ride is A, and the price of a kello of artichokes is A. Part 1 (2 points) If Ciara and Annie each operate independently in their respective competive markets, how many horse rides are produced? How many kilos of artichokes are produced? Part 2 (2 points) Now suppose that Ciara gets tired of giving away all of that free manure. So she decides to buy out Annie, creating one firm that produces both horse rides and artichokes with the same cost functions as in Part 1 above. What is the profit-maximizing level of production for the combined firm? horse rides and kilos of artichokes 10 Part 3 (2 points) What is the socially optimal number of horse rides? If the firms remained independent, as in Part 1, what is the size of the per-unit subsidy needed to induce horse ride production at the socially optimal level? 06 Question (6 points) Ciara's Corral is a horse farm that operates in a competitive market with the following cost function for horse rides, H: c(H) Annie's Artichokes recently opened on a neighboring property in part because Ciara gives her the manure she needs for fertilizer for free. Annie's costs of producing a kilo of artichokes, A. are c(A) --H.The market for artichokes is also competitive. The price of a horse ride is 4, and the price of a kilo of artichokes is 4 Part 1 (2 points) If Ciara and Annie each operate independently in their respective competive markets, how many horse rides are produced? How many kilos of artichokes are produced? Part 2 (2 points) Now suppose that Ciara gets tired of giving away all of that free manure. So she decides to buy out Annie, creating one firm that produces both horse rides and artichokes with the same cost functions as in Part 1 above. What is the profit-maximizing level of production for the combined firm? horse rides and kilos of artichokes Part 3 (2 points) What is the socially optimal number of horse rides? If the firms remained independent, as in Part 1, what is the size of the per-unit subsidy needed to induce horse ride production at the socially optimal level? 5 06 Question 16 points) Clara's Corral is a horse farm that operates in a competitive market with the following cost function for horse rides. H: (H) - Annie's Artichokes recently opened on a neighboring property, in part because Ciara gives her the manure she needs for fertilizer for free. Annie's costs of producing a kilo of artichokes. A are (A) - H. The market for artichokes is also competitive. The price of a horse ride is A, and the price of a kello of artichokes is A. Part 1 (2 points) If Ciara and Annie each operate independently in their respective competive markets, how many horse rides are produced? How many kilos of artichokes are produced? Part 2 (2 points) Now suppose that Ciara gets tired of giving away all of that free manure. So she decides to buy out Annie, creating one firm that produces both horse rides and artichokes with the same cost functions as in Part 1 above. What is the profit-maximizing level of production for the combined firm? horse rides and kilos of artichokes 10 Part 3 (2 points) What is the socially optimal number of horse rides? If the firms remained independent, as in Part 1, what is the size of the per-unit subsidy needed to induce horse ride production at the socially optimal level? 06 Question (6 points) Ciara's Corral is a horse farm that operates in a competitive market with the following cost function for horse rides, H: c(H) Annie's Artichokes recently opened on a neighboring property in part because Ciara gives her the manure she needs for fertilizer for free. Annie's costs of producing a kilo of artichokes, A. are c(A) --H.The market for artichokes is also competitive. The price of a horse ride is 4, and the price of a kilo of artichokes is 4 Part 1 (2 points) If Ciara and Annie each operate independently in their respective competive markets, how many horse rides are produced? How many kilos of artichokes are produced? Part 2 (2 points) Now suppose that Ciara gets tired of giving away all of that free manure. So she decides to buy out Annie, creating one firm that produces both horse rides and artichokes with the same cost functions as in Part 1 above. What is the profit-maximizing level of production for the combined firm? horse rides and kilos of artichokes Part 3 (2 points) What is the socially optimal number of horse rides? If the firms remained independent, as in Part 1, what is the size of the per-unit subsidy needed to induce horse ride production at the socially optimal level? 5