Question

The graph titled Soy Bean Market is a graph of the market for soy beans, a perfectly (purely) competitive market. The graph titled Roy's Soys depicts an individual firm in the market for soy beans. The market and the firm are currently in long-run equilibrium at Point A. Show what happens in the short run on both graphs when a new medical study shows soy beans to be an effective weight-loss supplement. On the market graph, shift a curve (or curves). On the firm's graph, use "Price 2" to draw a new price line for the firm. On both graphs, indicate the new equilibrium points with the points labeled B Now, show the changes that get both graphs back to long-run equilibrium. Shift the appropriate curve(s) for the market and "Price 3" for the firm. Indicate the new long-run equilibrium with the points labeled C. Soy Bean Market Roy's Soys 20 20 19 18 17 16 18- 17 verage total cost се 13 12 13 12 10- 10 ng-run supply Price 4 4 inal cost 0 1 2 3 4 5 67 8 9 10 11 12 13 14 15 16 17 18 19 20 0 1 2 3 4 5 67 8 9 10 11 12 13 14 15 16 17 18 19 20 Quantity (millions of bushels) Quantity (hundreds of bushels)

Answer 1

Demand increases and shifts to the right. For the firm price increases to price 2 Higher price leads to higher profit resulting in new firms entering the market. Supply curve shifts to the right. For the firm point C is equal to point A, and price = price 3