Suppose the wheat growing industry in the US is perfectly competitive and there is free entry...

Suppose the wheat growing industry in the US is perfectly competitive and there is free entry in the long run. the market demand function is Qd= 580 -4p, which is measured in tons per month. each producer in the industry has a fixed cost of $400 and a variable cost function given by VC=q^2 +5q, where q is the output of an individual producer.

a)calculate the long run market equilibrium price and quantity. How many firms are there in the economy?

Suppose the marginal cost increases by 2$ from the long run equilibrium. At the same time the market demand decreases by 34. Answer the following:

b) calculate the new short run market equilibrium price and quantity

c) what is the profit of each individual firm in the short run?

d) Draw a graph to show the short run and long run response of the economy. Mark the short run and long run equilibrium price and quantity on the graph.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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