Question

Question No. 3 (25pts.) The market for wheat consists of 500 identical firms, each with a total cost function given as: TC = 90,000 + 0.0000 1Q2 where Q is measured in bushels per year. The market demand curve for wheat is: Q = 90,000,000-20,000,OOOP where P is the price per bushel. A. Determine the short-run equilibrium price and quantity that would exist in the market. Calculate the profit maximizing quantity for the individual firm. Calculate the firm's short-run profit (loss) at that quantity. B. C. Calculate producer surplus for the industry and the typical firm D. Assume that under the conditions described in part B, the short-run profit or loss is representative of the current long-run prospects in this market. You may further assume that there are no barriers to entry or exit in the market. Describe the expected long-run response to the conditions described in part B. (The TC function for the typical firm may be regarded as an economic cost function that captures all implicit and explicit costs.)

Answer 1

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