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Suppose the supply function for canola is given by: Qs = 500 + 10p − 10pL^3...

Suppose the supply function for canola is given by:

Qs = 500 + 10p − 10pL^3 − 2pF,

where Qs is the quantity of canola supplied, p is the price of canola (own-price), pL is the rental price of land, and pF is the price of fertilizer. Which input price, land or fertilizer, has a larger effect on the quantity of canola supplied? Will this always be the case, or is the size of the effect only valid for certain values of pL and pF? How do you know?

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Answer #1

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The effect is found by the first differentiation of the function with respect to the inputs

It means the effect of increase in the price of land increases exponentially as the price of land increases but the effect of fertilizer increases linearly and it is 2 times of the price all the time but the land has it 20 times of the price so the effect of change in price of land is higher than the fertilizer at all value of PL and PF.

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