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Part B Let's consider a middleman rm in the business of producing ethanol. Assume that the rm can produce its own com (the feedstock) or
Part B Let's consider a middleman rm in the business of producing ethanol. Assume that the rm can produce its own com (the feedstock) or it can purchase corn from third party farmers. The rm processes the corn into ethanol on its own. To maintain consistency with your notes, let's call our feedstock X h (in-house) and Xm (third party). Suppose the inverse demand curve is P = 147 Q and the production function is Q = f (X ) = 2(Xh +Xm)2. The cost of producing corn inhouse is Oh (Xh) = 12 + 2X E. The cost function of a third party producer is Cm (Xm) = 8 + 2X31. Finally, the cost of processing feedstock from either source is Cp(X) = 2(Xh + Xm)2. For this middleman, nd the: 1. Marginal productivity of the input. 2. Marginal revenue of the output (remeber - this is Q, not X) 3. Marginal outlay
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