Question

2. The health benefit of almond was recently discovered and publicized. As a result, Mark's almond farm has increased its production from 5 tons a year to 10 tons a year. We know that Mark is a profit maximizer and he makes negative profit producing 10 tons a year a. (Spt) Please use the following diagram to describe the change in both diagrams. Make sure you mark all of the equilibrium quantities and prices wherever possible. b. (4pt) On the left diagram, please identify the Mark's loss when producing 10 tons a year. AVC Mark's Cost Structure Almond Market

Answer 1

The change in price is lower than the change in cost, therefore there is a loss. Loss will be the area under the revenue (15*10) minus the area under average cost curve (18*10). Numbers are shown as example.

Mc 18 7 15 AVC 10 5 10 5 10 Almond Market Mark's Cost Structure

Mc 18 7 AVC 5 10 Mark's Cost Structure

Shaded region is the loss, where the two lines are for price 18 and 15.