Question

3) Corn is produced under perfectly competitive conditions. Corn farmers have U-shaped, long-run average cost curves that reach a minimum average cost of $3 per bushel when 1000 bushels are produced. a.(10) If the market demand curve for corn is given byLaTeX: Q_D=2,600,000-200,000PQ D = 2 , 600 , 000 − 200 , 000 P, in the long-run equilibrium what will be the price of corn, how much total corn will be demanded, and how many corn farms will there be? b.(10) Suppose demand increases to LaTeX: Q_D=3,200,000-200,000PQ D = 3 , 200 , 000 − 200 , 000 P and if farmers cannot adjust their output in the short run, what will the market price be with this new demand curve? What will the profits of the typical farm be?

3) Corn is produced under perfectly competitive conditions. Corn farmers have U-shaped, long-run average cost curves that reach a minimum average cost of $3 per bushel when 1000 bushels are produced. a.(10) If the market demand curve for corn is given byQd = 2,600,000 – 200,000P, in the long- run equilibrium what will be the price of corn, how much total corn will be demanded, and how many corn farms will there be? b.(10) Suppose demand increases to Qd = 3,200,000 – 200,000P and if farmers cannot adjust their output in the short run, what will the market price be with this new demand curve? What will the profits of the typical farm be?

Answer 1

a) In long run, P = minimum of AC.
So, P = $3 at q = 1000

Qd = 2,600,000 - 200,000P = 2,600,000 - 200,000(3) = 2,600,000 - 600,000 = 2,000,000

Corn farms = Qd/q = 2,000,000/1000 = 2000 farms

b) Qd = 200,0000 = 320,000 - 200,000P
So, 200,000P = 3,200,000 - 2,000,000 = 1,200,000
So, P = 1,200,000/200,000 = $6

Profit = TR - TC = P*q - AC*q = (P-AC)*q = (6 - 3)*1000 = 3,000