Question

4. Your dad recently handed you the small family farm. Your total costs depend on the quantity of soybean bushels that you produce: TC = 20 + 2q +9? where q denotes bushels of soybeans (the lower case q indicates the quantity that you are producing). The demand and supply of soybeans in the world market are the following: lg = 20 – P Qs = 5 + <P where Q denotes total bushels of soybeans, in millions (the upper case Q indicates the quantity that is produced overall in the market - in millions). Assume that the soybean industry is competitive, so that the demand curve for your soybeans in perfectly elastic. In the short run, you will _. In the long run, you will o continue to produce; stay in this market o continue to produce; exit as soon as you can O shut down production; stay in this market O shut down production; exit as soon as you can

Answer 1

Answer : Option 4 is correct. In the short run, you will shut down production . As they are not able to recovered variable cost . As we know that

Q d = Q s  = 20-P = 5+1/2 (P)

15 =3P/2

15*2 /3 = P

P =$10

Q = 10 units

MR = 10

MC = 2+2q = 22

So, the firm is neither able to recover the variable cost from this price, so its better to shut down in short run where as in long run they will exist market as possible as soon.