Describe the long-run outcome for a competitive corn producer and the competitive corn industry. Now suppose...

Describe the long-run outcome for a competitive corn producer and the competitive corn industry. Now suppose that the demand for corn increases. a. Discuss the adjustments by the firm and the industry. Explain. b. What happens to the firm’s long-run economic profit? Explain.

Solutions

Expert Solution

In the long run, competitive corn producer will have price equal to marginal revenue and marginal cost and at the intersection of MR and MC, ATC is tangent. It makes price equal to ATC and producer is going to earn zero economic profit. For industry, market demand will equal market supply in the long run at a level average revenue equals average cost for each firm in the industry and all firms are earning normal profit in the industry.

When demand for corn increases, then demand curve shits upward at the firm level and price increases. It makes firms to earn economic profit as price becomes higher than ATC. For industry, demand curve shifts to the right and price and output increase at the new short run equilibrium.

When firm starts earning economic profit, then new firms enter the market. It makes price level to decrease in the long run, and firm earns zero economic profit again, at the long run equilibrium.

Rahul Sunny answered 2 months ago

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