Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 11, Problem 3P
To determine
Percentage return rate.
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There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $24 for every $300 invested. What is their percentage rate of return? The other two dairies have a cost structure that generates profits of $22 for every $200 invested. What is their percentage rate of return? Assuming that the normal rate of profit in the economy is 10 percent, will there be entry or exit? Will the change in the number of firms affect the two that earn $22 for every $200 invested? What will be the rate of return earned by most firms in the industry in long-run equilibrium? If firms can copy each other’s technology, what will be the rate of return eventually earned all firms?
The wheat industry is comprised of many firms producing an identical product. Market demand and supply conditions are indicated in the left-hand panel of the figure attached; the long-run cost curves of a wheat farmer are shown in the right-hand panel. Currently, the market price for wheat is $2 per pound, and at that price, consumers are purchasing 800,000 pounds of wheat per day.
Using the graphs attached, answer the following:
a. How many pounds of wheat will each farmer produce if they want to maximize profits?
b. How many farmers are currently serving the industry (fractional numbers are fine)?
c. In the long run, what will the equilibrium price of wheat be? Briefly explain your answer.
Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn‑based ethanol fuel increased.
What do you expect to happen in the long run for the corn industry given this recent success?
A. The price per bushel of corn will continue to increase, yielding higher profits. Thus, more firms will enter the market indefinitely.
B. Profits will become negative due to overfarming, which will result in the corn farming industry going under.
C. Profits will be equal to zero.
D. None of the above.
Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health.
What do you expect to happen in the long run for the bacon industry?
A. Seeing this as an opportunity to monopolize a fledging industry, firms will enter the industry, shifting…
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