Wheat is produced under perfectly competitive conditions. Individual wheat farmers have U-shaped, long-run average cost curves that reach a minimum average cost of $3 per bushel when 1,000 bushels are produced. The market demand curve for wheat is given by Qd = 2,600,000 - 200,000P where P is the price per bushel and Qd is the number of bushels demanded per year.
(a) In the long-run equilibrium, what will be the price of wheat?
(b) How much total wheat will be supplied? How many wheat farms will there be?
(c) Suppose demand shifts outward to Qd = 3,200,000 - 200,000P. If farmers cannot adjust their output in the short run (that is, suppose the SMC curve is vertical, output stays fixed after demand changes), what will the market price be with this new demand curve? What will the profits of the typical farm be?
(d) Given the demand curve described in part c, what will be the new long-run equilibrium? (That is, calculate the market price, quantity of wheat produced, and the new equilibrium number of farmers in this new situation.)