Based of the attached case:*Competitive firms do not realize profits or incur losses in the long-run due to free entry and exit of new firms, based off the assumption that the prices of inputs (labor, capital, etc. remain unchanged) . Apply the case of the ethanol plants during 2006 and 2016 to demonstrate the above assertion. *Provide an extra example to the ethanol plants case used. Mini-CaseThe Size of Ethanol Processing PlantsWhen a large number of firms initially built ethanol processing plants, they builtrelatively small ones. When the ethanol market took off in the first few years of thetwenty-first century, with the price reaching a peak of $4.23 a gallon in June 2006,many firms built larger plants or greatly increased their plant size. From 1999 to 2006,the number of plants nearly doubled and the average plant capacity nearly tripled (36to 106 million gallons per year).However, since then, the ethanol market price has collapsed. The price was generallybelow $3 and often below $1.50 from 2007 through 2018, hitting a low of $1.26 inJanuary 2016. As a result, many firms closed plants or reduced their size. The averageplant capacity fell by a third from 2006 to 2017 (106 to 78 million gallons per year).

In economics, competition is a situation where various economic firms are in contention to obtain…

Answered: Based of the attached case:…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.6IP

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Based of the attached case:

*Competitive firms do not realize profits or incur losses in the long-run due to free entry and exit of new firms, based off the assumption that the prices of inputs (labor, capital, etc. remain unchanged) . Apply the case of the ethanol plants during 2006 and 2016 to demonstrate the above assertion.

*Provide an extra example to the ethanol plants case used.

Mini-Case
The Size of Ethanol Processing Plants
When a large number of firms initially built ethanol processing plants, they built
relatively small ones. When the ethanol market took off in the first few years of the
twenty-first century, with the price reaching a peak of $4.23 a gallon in June 2006,
many firms built larger plants or greatly increased their plant size. From 1999 to 2006,
the number of plants nearly doubled and the average plant capacity nearly tripled (36
to 106 million gallons per year).
However, since then, the ethanol market price has collapsed. The price was generally
below $3 and often below $1.50 from 2007 through 2018, hitting a low of $1.26 in
January 2016. As a result, many firms closed plants or reduced their size. The average
plant capacity fell by a third from 2006 to 2017 (106 to 78 million gallons per year).

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