2. Perfect Competition (12 points) The quinoa market is perfectly competitive. The market demand and supply are: $Q = 1800 - 20P$ $Q = 600 + 4P$ The costs for each individual firm are: $MC = 30 + 2Q$ $ATC = 30 + Q + \frac{500}{Q}$ You need to show your calculations in order to get full credit. Please draw graphs by hand.
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Nick J.
Consider a perfectly competitive market for wheat in New York. There are 50 firms in the industry, each of which has the cost curves shown on the following graph: COST (Cents per bushel) 100 90 80 70 60 50 40 30 20 10 0 OUTPUT PER PERIOD [Thousands of bushels] The next graph shows the market demand for wheat. Use the orange points (square symbol) to plot the short-run industry supply curve for the wheat industry. Specifically, place an orange point at the lowest point of the supply curve and another orange point at the highest point of the supply curve. A line segment will automatically connect the points. (Note: You can disregard the portion of the supply curve that corresponds to prices where there is no output, since this is the industry supply curve.) Then, place the black point (X symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. Dashed drop lines will automatically extend to both axes. PRICE (Cents per bushel) 100 90 80 70 60 50 40 30 20 10 0 100 200 300 400 500 600 700 800 900 1000 QUANTITY [Thousands of bushels] At the current short-run market price, firms will ___________ in the short run. In the long run, ___________ the market given the current market price.
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