Wholesome Walnuts is a retail firm located in a southern state which is popular among tourists....

Wholesome Walnuts is a retail firm located in a southern state which is popular among tourists. It is one of many firms participating in the highly competitive market for assorted nuts (shelled and unshelled).

Currently the market is in equilibrium and the market price is $32. All the firms in the market (and potential entrants have the same cost structure, and the current market quantity is 48,000 pounds per month.

Wholesome Walnuts faces a monthly cost of $3,000 for its machinery and equipment. In addition, the monthly cost of labor and materials used in production is described by the equations: AVC = 0.05q + 2 and MC = 0.1q + 2.

1. Wholesome Walnuts’ current profit maximizing quantity is ______ pounds per month.

2. At the current profit-maximizing quantity, Wholesome Walnuts’ profit is $ _______.

3. Currently, there are _____ firms in the market.

Now consider that severe unfavorable weather conditions led to a decrease in the supply of dried fruit, a complementary consumption good. The price and quantity of dried fruit traded changes, and this impacts the competitive market for assorted nuts.

The market for assorted nuts adjusts in the short run, and now the market price Wholesome Walnuts faces is either $30, $32, or $34.

4. As a result of the market shocks and expected short-run adjustments, the current market price is more likely to be $ _____.

5. As a result of the market shocks and expected short-run adjustments, the current market quantity is __________ per month.

6. As the market adjusts in the long run, one would expect that the number of firms in the market will ________ (decrease | either decrease or increase (more information is needed to provide a conclusion) | increase | remain the same)

the market quantity will ____________ (decrease | either decrease or increase (more information is needed to provide a conclusion) | increase | remain the same)

Wholesome Walnuts’ profit-maximizing quantity will ________ (decrease | either decrease or increase (more information is needed to provide a conclusion) | increase | remain the same)

the price it charges will ______(decrease | either decrease or increase (more information is needed to provide a conclusion) | increase | remain the same)

and its monthly profit will _________(decrease | either decrease or increase (more information is needed to provide a conclusion) | increase | remain the same)

Expert Solution

The answers are given below :

Rahul Sunny answered 2 years ago

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