Question

Topic 7: Perfect Competition Tutorials Exercises BHMH 2002 Introduction to Economics 2019-20 S2 Question 2 Homework After attending the tutorial meeting assigned for topic 7, submit your answer within 48 hours to the assigned submission link set by your subject lecturer. The market of apple is perfectly competitive in Country A. The equilibrium price and equilibrium quantity of apple is $10 and 1,000,000 units respectively in this market. There are 10,000 farms in this market. Assume that all farms earn zero economic profit. (a) Draw a set of market-firm diagram to illustrate the above situation in the market of apple in Country A. Label the critical points with the given figures. No explanation is needed. (b) Suppose that number of farms for producing apple decreases holding the product cost condition constant. Illustrate the effects in the market of apple and the economic profit (loss) of an individual farm in the short run in the same diagram of part (a). Explain briefly. Remark: The set of firm-market diagram MUST draw horizontally so that the price levels are consistent between the firm and market diagrams. No mark will be given if the firm-market diagram is drawn vertically.

Answer 1

• ATC -MRA 1,000,000 Q=100 No economic - proft. In the short run the fined cost are fined and as the quantity equilibrium is : fined at 1,000, odo che price at $10 I so the firms which are lift will produce more meaning will earn profil Q>100 Scanned wil,000,000 CamScanner