Question

6. Short-run perfectly competitive equilibrium Consider a perfectly competitive market for wheat in Chicago. There are 90 firms in the industry, each of which has the cost curves shown on the following graph: ? 100 90 MC BO 70 60 ATC 50 COST (Cents per bushel) 40 30 20 AVC 10 0 O 5 10 15 20 25 30 35 QUANTITY OF OUTPUT (Thousands of bushels) 40 45 50 The following graph shows the market demand for wheat. Use the orange points (square symbol) to plot the short-run industry supply curve for the wheat industry. Specifically, place an orange point at the lowest point of the supply curve and another orange point at the highest point of the supply curve. (Note: You can disregard the portion of the supply curve that corresponds to prices where there is no output, since this is the industry supply curve. Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. (Note: Dashed drop lines will automatically extend to both axes.)

Answer 1

***kindly rare***

Ans) In Perfectly competitive market, firms take market price as given and price is equal to marginal revenue.

Further, a profit maximising firm produces the quantity where MR and MC curve intersect i.e are equal.

If price is above ATC, firms earn positive economic profit and more firms will enter into the market in long run and supply will increase. This will decrease the price till it reaches minimum of ATC and firms will earn zero economic profit.

If price is below ATC but above AVC, firms will continue to operate in loss because this will minimise loss. In long run, some firms will exit the market and supply will decrease. This will increase the price till it reaches minimum of ATC and firms will earn zero economic profit.

If price is below AVC then firm will shutdown.

Lastly, supply curve is that portion of marginal cost curve ,which is above AVC.

To get the market supply curve, multiply the quantity with 90. For eg- at $40, individual firm is producing 35 units. So, market quantity will be 35×90=3,150

6. Short-run perfectly competitive equilibrium Consider a perfectly competitive market for wheat in Chicago. There are 90 firms in the industry, each of which has the cost curves shown on the following graph: ? 100 90 MC BO 70 60 ATC 50 COST (Cents per bushel) R-MR 40 30 20 AVC 10 0 O 5 10 15 20 25 30 35 QUANTITY OF OUTPUT (Thousands of bushels) 40 45 50 The following graph shows the market demand for wheat. Use the orange points (square symbol) to plot the short-run industry supply curve for the wheat industry. Specifically, place an orange point at the lowest point of the supply curve and another orange point at the highest point of the supply curve. (Note: You can disregard the portion of the supply curve that corresponds to prices where there is no output, since this is the industry supply curve. Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. (Note: Dashed drop lines will automatically extend to both axes.)

Use the orange points (square symbol) to plot the short-run industry supply curve for the wheat industry. Specifically, place an orange point at the lowest point of the supply curve and another orange point at the highest point of the supply curve. (Note: You can disregard the portion of the supply curve that corresponds to prices where there is no output, since this is the industry supply curve. Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. (Note: Dashed drop lines will automatically extend to both axes.) 100 Demand O 90 Supply Curve 80 + 70 60 Equilibrium 50 PRICE (Cents per bushel) 30 20 10 0 0 450 900 1350 1800 2250 27003150 600 4050 4500 QUANTITY OF OUTPUT (Thousands of bushlis) operate At the current short-run market price, firms will in the short run. In the long run, some firms will the market given the current market price. exit the market