Supply curves of the firm and industry in Perfect ….docx

Eco. 102 Supply Curves of the Firm and Industry in Perfect CompetitionAssume thatThe tomato growing industry in New Jersey in small relative to all the resources it uses, there are no barriers toentry and the technology is well known and free and the product is homogeneous.1. Farmers maximize “profit from their labor, land and capital (tractors, trucks, etc)3.There are currently 100 farms growing tomatoes.4. In the short run, farmers can produce more tomatoes by using more labor and water and fertilizers as shown below.The graph to the right illustrates the short-iun cost curvesfor producing various quantities of tomatoes by the typic_ . $/Unittomato farmer in New Jersey.1. At what quantity (point) does the fanner a. minimize average cost?b. minimize average variable cost? c. minimize marginal cost? Is thispoint important at all.2*. If the price is equal to 4. how many bushels would tJip farmer produce in order to maximize his/her profit?3*. What are total revenues at the profit maximizing output level at a price of 4.Typical tomato farmer65M42R1()2030 40 50 60 70 804*. What are the approximate total costs and total economic profits at the profit maximizing output.$.Total costs. SHADE IN RECTANGLE ON ABOVE GRAPHEconomic profit. SHOW ON ABOVE GRAPH5*. If the price of tomatoes falls to 3, how many tomatoes would the farmer produce?a. What is the farmers economic profit?b. Is the farmer also earning normal profit? Will he or she continue to produce.6. Below what price would the farmer stop producing tomatoes even in (he short run?Bushels of tomatoescurve, are producing tomatoes. If the price is $4 dollars.One farm Short run100 farms Short run# Farms iLong RunDemand At PPQlrPQdPQPQsrs11112222333344445555666677778888WhyFirm versus Industry Market (hard but easy)What is the short run supply curve of one farmer at each price (P). Enter in column Q for one farm.Right now only 100 farmers, all with the same short run supplyWhat is industry short run supply curve (fill in the table for 100 farms) The demand curve is Q = 1700 一 1500 x P . Plug in price for Q.What is the industry supply and the market demand at $4.00market demand. We havemarket demand. We haveQs_industry supply, Qdof (how much) and prices will What price will clear the market in the short run._ Given that each farmer is caniing a large economic profit at the current price of $4 and given the demand curve, what is the long run equilibrium price and quantity after allowing 100 days for other farmers to start growing tomatoes too. The price will fall to what?PMarket Q =, Q produced by each farmHow many farms are producing tomatoes.Hint: To find the number of firms in the industry look at how much will be demanded at the minimum long run price in this constant cost industry. Then divide the amount produced by each farm at this price into the demand at this price, which gives you the total number of farms.