Question

The figure to the right represents the market for peaches. Assume the market for peaches is perfectly competitive and a constant-cost industry. Also assume the industry is initially in long-run equilibrium. Then, the demand for peaches increases, as shown, from D, to D2. Use the line drawing tool to draw the new market supply curve (S2) and the long-run industry supply curve (SLR). Properly label this line. 6.004 Carefully follow the instructions above, and only draw the required objects. Price and cost (dollars per basket) 5.00+....... 4.007 2.00- 1.00+ D D 46 8 10 12 14 16 18 20 22 24 26 28 30 Quantity (baskets of peaches)

Answer 1

In the perfectly competitive market, the market price, in the long run, is equal to the minimum ATC so it does not change, therefore, the supply curve would be a horizontal straight line as the costs does not change being it a constant cost industry.

10.00 9.00 8.00 7.00 6.00 SLR 5.00 4.00 3.00 2.00- 1.00 D1 D2 0.00+ ó 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Quantity (baskets of peaches) Price and cost (dollars per basket) Su