Question

Part A.

Some firms in the agricultural industry can be considered to be operating in an almost perfectly competitive market. Draw a graph showing market supply, market demand, and equilibrium price and quantity for an agricultural product of your choice. Draw a corresponding graph for an independent farm using the market equilibrium price and marginal cost curve. If you line up the two graphs horizontally, the equilibrium price should be the same on both graphs.

Part B.

Now suppose that GDP decreases in the U.S., restaurants and schools are closed and have decreased the market demand for your product. What impact will this have on the independent farm in the short run, in terms of the market price, output of an independent farm, and market equilibrium quantity? Explain your reasoning. ? Show graphically and explain your reasoning.

Answer 1

The agricultural industry is operating perfect competition market.we consider like tomato industry.the production of tomato is the important factor for the industry.if production of tomato fluctuate then production of this particular industry also changes in the same direction.tomatoes uses in production of sauce and many other things.here in this figure we assume the demand and supply of jute products which determined price and quantity.we measure price on vertical axis and quantity on horizontal axis.the demand curve for jute product is D and the supply for jute product is S.and the demand and supply are equal at point E.where the market euilibrium achived.price is determined as P and quantity sells q.now it is a perfect competition for independent farm.the firm take the price as constant as he can't change it.so with the given price he changes it's output by maximisg profit.in the second diagram the price is given and determined from 1st diagram so it is horizontally straight line.which cuts the mc curve at point R.here it is also tangent to ac curve.so here the equilibrium achived and the quantity sell by farm is q0.

But now the demand for tomatoes falls as hotel resutants are closed in this situation.but the supply remain the same.so the demand curve shifts leftward.so the price also falls to p1.so what is the impact upon the individual farm.now he is getting less price.but he is losing as that price P1 his total cost exceeded the total revenue.which we can see in this following diagramso as price falls the farm will supply less quantity q1 from his mc curve.but there is other things like production of tomatoes is not depends upon market conditions.so before the fall of demand the production has already began.so the output is q0 now by the farm.but tomatoes is not be preserved for very long tines.so after production of q0 if he supplies only q1 then he will incur huge loss.but q0 will can compensate same of his loss.so in the short run the farm will supply the same q0 although at lower price P1

MC price price AR S E F P P = MR AR P سه P = MR, AR, Pi D Y quantity 9 a, ao quansing