An economics applications of systems of linear equations and

ineqaulities

Problem 1 . [5 pts EC into hw] A simple Leontief model. Example 2 on

page 263 is very helpful here.

(a) An economy has 3 industries: fishing, forestry and boat building. To

produce 1 ton of fish 4 fishing boats are needed. To produce 1 ton
of timber 0.125 tons of fish is needed in order to feed the foresters.
To build 1 fishing boat 1.5 tons of timber is needed. There is a
demand of 20 tons for fish and 40 tons of timber and there is no
(external) demand for fishing boats.
What gross outputs each of the three industries must produce to
meet the demands? (use a calculator for the computation part)

(b) What happens if we make the following change in the problem: To

produce 1 ton of timber 1/6 tons of fish is needed in order to feed
the foresters. Explain what happens in the context of the problem
focusing on production and needs. Also give a mathematical
explanation for the result in this case.

(c) Repeat part (b) with the condition that to produce 1 ton of timber
1/4 tons of fish is needed in order to feed the foresters. Explain
what happens in the context of the problem focusing on production
and needs. Also give a mathema tical explanation for the result in
this case.

Problem 2. [13 pts EC into hw]

A cement company asked for your advice regarding their production

needs. They own two production sites. Site I has a maximum cement
production capacity of 20 tons per hour while Site II has a
maximum production capacity of 30 tons per hour. The production
at Site I produces 2.5 tons of CO 2 emissions per ton of cement
produced while Site II produces only 1 ton of CO 2 emissions per ton
of cement produced. According to regulations the company is
allowed to emit a maximum of 70 tons of CO 2 emissions per hour.

(a) The cement produced at Site I can be sold for a net profit of $20 per
ton and the cement produced at Site II can be sold for a net profit of
$30 per ton. How much cement should be produced at each sites to
maximize the profit? (hint: this is a fairly easy problem from section
6.7)
(b) After some more thorough analysis with your associate you realize
that the real profit function is not linear. You came up with two
different functions to describe it (x = #of tons of cement produced
per hour at Site I and y = #of tons of cement produced per hour at
Site II) :

(i) P(x,y ) = - x 2 - y 2 + 46 x+ 54 y
(ii) P(x,y ) = - x 2 - y 2 + 26 x+ 46 y

For each of these functions determine how much cement should be

produced at each sites to maximize the profit? (hint: this is a
problem from section 6.3)

(c) Federal regulations allow companies to exceed the limit on CO 2

emissions if they pay extra fine. Should you advise this company to
purchase those certificates that allow the higher emission limits if
the cost of them is $3 per ton of CO 2 ? Answer the question for each
of the 3 different profit functions. (Hint: investigate the net profit
after paying the fine for those critical points and corner points that
were outside of the region due to the original emission limits)