Question

In: Economics

You need to assume you have your only inputs are coffee beans which you import from...

You need to assume you have your only inputs are coffee beans which you import from Brazil and labor which you hire from the local area. But you sell coffee lattes here in the local area using labor and coffee beans as the two inputs. Follow these steps: A. Draw demand and supply for your business or market. Label the x axis with quantity of coffee you making and the price level of coffee lattes on the y axis showing the hypothetical equilibrium point and determine a hypothetical price and quantity. Do your work HERE below: B. Assume there was a drought that hits the major coffee producer in Brazil, the place where you import your coffee beams from. . Re-do part A here taking into consideration how the drought in Brazil will impact your demand and supply curves for your business. Show the hypothetical new equilibrium, hypothetical new price, and hypothetical new quantity. Do your work HERE below: 6. Assume your business is small one and that you are following the perfect competition model covered in chapter 8. Redrew the Coffee Industry demand and supply curve and redrew your business demand and supply curve. Do your work HERE: 7. Repeat your work assuming your business follow the monopoly model. Redrew your monopoly business. Showing a hypothetical equilibrium point (Hint: MR=MC), showing the hypothetical equilibrium price , and quantity. Do your work HERE: 8. Repeat your work in step 5 assuming your business follows the monopolistic competition model. Do Your work HERE.

Solutions

Expert Solution

A) The supply demand graph is given below:

Hypothetical Price= P, quantity= Q

B) A drought hit Brazil can reduce the supply of coffee beans in market, so it would be costly to procure coffee beans now. So, Supply curve shifts to the left. As a result, price of coffee latte increases, and its demand falls:

New hypothetical price: P*, quantity is Q*

C) Business supply demand curve: In perfect competition, business takes price as given and they set supply accordingly. The setup is given below:

Price is given and is equal to marginal cost and average cost. So business set quantity q in such a way that MR=MC and AR=AC

D) If firm is a monopoly, it faces a downward sloping demand curve. Firms sets quantity where MR=MC:

Quantity produced is Q and price set is P

E) Monopolistic competition: Firms faces a downward sloping demand curve, but quantity is set at a level where Acerage cost is tangent to demand curve:


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