Question

1. 10 pts. A farming firm sells wheat in a perfectly competitive market. The firm's total costs are C(Q)=10Q-692 +Q3. The wheat industry is currently at its long-run equilibrium. a. How much wheat is this firm producing (what is Q*)? b. What is the market price? c. How much profit is this firm earning? d. Suppose the demand for wheat increases, which increases the market price to $10. How should this firm adapt to this price change? e. What profit will the firm earn after they've adapted to the price change in (d)?

Answer 1

(110) TC = 100-60? + a? MC = dTC da = 10(1) - 12 Q +302 ATC = TC = 102-6Q²+Q3 | 310 –6Q+Q? since gu long-sun profit-maxi -miging condition n of of perfectly competitive firm is 2 P=ATC (mina ATC) MC cuts ATC at its minium point So MC= ATC 10-122 +30% = 10-6Q ta? 32² – Q² _122 +6Q Horlo=0 2q² - 6Q=0 22² =62

a = 60 ( ل equation 4 = 3 units. Substituting a luto ATC ATC= 10-6(3) 4 (3)? = 10 -18 +9 = 19-18 Since P=ATC There market price will be =$1 (C) Since in long-run P=ATC, there - fore profit will be zero. profit = (P-ATUJQ =(1-1) (d) since market price $16 due to qucrease demand. Hence existing Increase its supply price will increase increases to in mordet firm will because Increased Profit.

2=3 (e) At P = $10 ATC=1 Profit= (P-ATC) = (10-1)3 =9x3 = $27