Question

The graph below shows shows a perfectly competitive market for wheat and a typical farm in the market. The demand for wheat increases from D1 to D2. Assume that wheat production is a constant-cost industry. A typical farm The market for wheat Cost ($) Price (S per bushel) MC 10 10 9 ATC 8 7.20 715 751 D2 5 5 40 80 120 160 200 240 Quantity (thousands of bushels) 20 40 60 80 100 120 Quantity (milions of bushels) Question 16 (1 point) In the new short-run equilibrium a typical farm sells A thousand bushels of wheat (enter a whole number, e.g. 75) Question 17 (2 points) In the new long-run equilibrium, a typical farm produces of wheat (enter a whole number, e.g. 75) and sells it at $ a number with 2 digits after the decimal point, e.g. 3.50). thousand bushels per bushel (enter

Answer 1

Part 1) Given the market price of $8 per bushel, a typical firm will sell 120,000 bushels of wheat.

Part 2) In the long-run, attracted by the economic profit (since price is higher than the average total cost) being earned by firms in the market, new firms will enter. This will raise the supply in the market and will reduce the price till the price falls to the lowest point of the average total cost (ATC) curve. So, in the long-run, a typical firm will produce 80,000 bushels and will sell it at the price of $7 per bushel.