Suppose a typical (representative) corn farm has a short run production technology which results in the outcome of U-shaped Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC). Further, suppose this firm sells its product in a market where the price of the good is determined by the interaction of market Demand and Supply. Because an individual firm is very small compared to the rest of the market, we treat the market price as the price given to the firm, and the individual firm cannot impact that price. assume we are in the Short Run for this firm. In graphing, put $ on the vertical axis and lower-case q (firm output) on the horizontal axis. Start with the AFC0, AVC0, ATC0, and MC0 curves . show shifts in any of the cost curves, reflecting the higher cost of land (keeping in mind that this higher cost is independent of how much or how little corn is actually produced) and labeling the changed cost curves with a subscript 1. On the graph with $ on the vertical axis and individual firm output q on the horizontal axis, draw the P1. What is the new profit maximizing output q1 for this typical firm? Graphically depict the size of profits or losses (negative profits) at the new price P1. Is the firm making positive or negative profits?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a typical (representative) corn farm has a short run production technology which results in the outcome of U-shaped Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC). Further, suppose this firm sells its product in a market where the price of the good is determined by the interaction of market Demand and Supply. Because an individual firm is very small compared to the rest of the market, we treat the market price as the price given to the firm, and the individual firm cannot impact that price.

assume we are in the Short Run for this firm. In graphing, put $ on the vertical axis and lower-case q (firm output) on the horizontal axis.

Start with the AFC₀, AVC₀, ATC₀, and MC_{0 curves} . show shifts in any of the cost curves, reflecting the higher cost of land (keeping in mind that this higher cost is independent of how much or how little corn is actually produced) and labeling the changed cost curves with a subscript 1. On the graph with $ on the vertical axis and individual firm output q on the horizontal axis, draw the P₁. What is the new profit maximizing output q₁for this typical firm?
Graphically depict the size of profits or losses (negative profits) at the new price P₁. Is the firm making positive or negative profits?

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