Question

Suppose the apple market is competitive.
a. State the long run equilibrium condition of a typical profit-maximizing firm operating in a competitive market. Express your answer using marginal cost and average cost. (2 marks)
b. Assume the market for apple is now operating at her long run equilibrium. Draw side-by-side diagrams to show the long run equilibrium conditions for a typical apple farmer and the market for apples. Label your diagrams clearly. (6 marks)
c. Recently, there is a fall in the price of fertilizers used for growing apples. Making use of the diagrams in (b), explain the short run effects of the fall in the price of fertilizers on the output of a typical apple farmer and the equilibrium price and quantity in the market of apples. (8 marks)
d. Is there any profit for a typical apple farmer in (c)? Briefly explain the long run impacts of this change on the market of apples. (4 marks)

Answer 1