Question

Suppose farmers suddenly can earn considerably more profit per acre from growing corn than from growing soybeans. If both industries are perfectly competitive, we can predict that in the long-run:

a) some farmers will switch from growing corn to growing soybeans until economic earnings per acre are relatively equalized.

b) some farmers will switch from growing soybeans to growing corn until economic earnings per acre are higher from growing soybeans compared to corn.

c) some farmers will switch from growing soybeans to growing corn until economic earnings per acre are relatively equalized.

d) this situation will continue to persist into the long run

Answer 1

The answer is C. If farmers can earn more profit per acre from growing corn than growing soybeans, then we would expect more and more farmers to switch to growing corn in the future. This shift from growing soybeans to growing corn will occur until the profits from growing the two are same. If the profits from growing corn and soybeans are equal, then it does not matter whether farmers grow corn or soybean and thus farmers will stop shifting from growing soybean to corn. Thus, choice C is the answer that captures this.