Question

Question 3 20 pts 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? HTML Editor

Answer 1

question (3) -run Cost reach Long-ran a minimum at $3 when an individual fism produces 1000 busheis Longrun equilibrium Price will $3 (a) The The Longrun be where AC reachs at minimum qo= 2600,000 - 200,000 P with P-min AC = 3 ao= 2600,000 - 200,000 (3) =) QD = 26,00,000 - 6,00,000 =) QU = 20,00,000 Corn will be demaned 20,00,000 Bushels No. of fooms = Фр 20,00,000 2000 firms. 1000 1ooo Corn farms will be there = 2000 farms, New Demand: Po = 3200,000 - 200,000P Since There were 2000 frome each is producing 1000 Bushels that leads The market

Busnels Supply of corn equals to 2000 * 1000 - Qs 2000.000 20,00,000 equilibrium AD = Qs 32,00,000 - 2,00,000 boop 20,00,000 12,00,000 2,00,000 p - P = 12,00,000 2,00,000 =) 1000 p = $6 Cost of each firm producing 1000 Busnels is $3 * $3,000 and revenue of Each firm Each firm is $6 * 1000 = $6000 Profit of typical firm = typical firm = TR-TC = T =)$3000 Gooo-3000