Question

Assume that Raul Lopez is a soybean farmer in the Florida panhandle and that he operates under conditions of perfect competition. The graphs above represent the soybean market and Raul's farm:

a. At what price will Raul sell his soybeans? What quantity will he plant? Why?

b. If Raul discovers a new irrigation technique that reduces his AVC and ATC, how will the price at which he sells his product change? Why? What will happen to his output?

c. How will the market change if Raul shares his discovery with all soybean farmers? How will price and quantity sold in the soybean market change?

d. Explain and graphically illustrate how the market will adjust after the events in part c.

Rauls Farm Save Bean Market мс S АTC AVC D Quantity Quantity Frice Price

Answer 1

MC 4 A7 ATC AVC Pett PEC as Raul will sell his soybeans at P=Mc, and Pe price a when e and go quantity will be planted by him. Raulo is in perfect competitive market price is gheen in the market and it is deferrined in the beans market. 6 If Raul discover a neve technique then he will shill sell the good at previous price as it will be profitable for him non. At neue Afhen using I neue technique his cast curre decreases so, (P-APC) is pasime in his case row. So, now he is enjoying super normal profit at old price. His grantity producten dionears from will not decreare at old price and supernormal profit is A B C D of Pp Raul shares his discovery then all farmers will adapt the technique and enjoy the super normal profit by seeing this other farmers ender into the market and supply incorans so, at now, equilibrium market price for decreases to P, autput increases As a result and in the industry Raul is now producing output at a, as now PT ATC is at P, = MC is at a a Pa MC PA ATC ATE Ave Pe B on 10 9.9: