Assume soybeans are produced by a perfectly competitive, constant-cost industry. Fresh Farm is a typical firm producing soybeans and is currently operating with an economic loss.
A. Using a correctly labeled graph for Fresh Farm, show each of the following in the short
run.
i. The marginal cost curve and average total cost curve labeled MC and ATC
respectively.
ii. Fresh Farm’s price and loss-minimizing quantity labeled Pf and Qf
respectively.
iii. The average variable cost curve labeled AVC.
B. Suppose that newspapers have recently reported that excessive soybean consumption can
cause health problems. As a result, will the new loss-minimizing quantity for Fresh Farm
be greater than, less than, or equal to Qf in the short run? Explain.
C. Is the long-run market supply for soybeans perfectly inelastic, relatively inelastic, unit
elastic, relatively elastic, or perfectly elastic?
D. Assume now that the soybean market is in long-run equilibrium and that fertilizers used
in soybean production double in price. Using a correctly labeled graph for the soybean
market, show each of the following.
i. Market equilibrium quantity and price, labeled Qm and Pm.
ii. How the market equilibrium changes due to fertilizer price changing.