Question

Assume that wheat is produced in a purely competitive market. In the SHORT RUN the demand...

Assume that wheat is produced in a purely competitive market. In the SHORT RUN the demand for wheat increases and wheat producers earn economic profits. In the LONG RUN how will this change in economic situation affect: (This is a horrible question so think of this as: what happens in the LR when firms are making SR positive economic profits in purely competitive industries)

a. price of wheat (increase or decrease)

b. economic profits (increase or decrease)

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

In short run, firm can make positive economic profits or firm can earn super normal profit. Presence of super normal profit in short run incentivize entry of new firms in market. Hence, supply of commodity increases significantly after entry of new firms in market. It will reduce price of good and now firm would be reduced to zero economic profits or super normal profit would no longer be there. In long run, firms will get only zero economic profit.

Hence, price of wheat decreases

and economic profit also decreases due to entry of new firms in market.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
17.   Assume that a perfectly competitive industry is operating at its long run equilibrium. Then, the...
17.   Assume that a perfectly competitive industry is operating at its long run equilibrium. Then, the demand for its product increases. Which of the following best describes the SHORT RUN response? A.  market demand shifts right, firms' demand curves decrease, and output decreases. B.  market demand shirts right, firms' demand curves decrease, and output increases. C.  market demand shifts right, firms' demand curves increase, and output increases. D.  market demand shirts right, firms' demand curves increase, and output decreases. 18.   Assume that the increase...
In the short run, if firms in a perfectly competitive market are experiencing economic loss, then...
In the short run, if firms in a perfectly competitive market are experiencing economic loss, then in the long run, firms will _____ the market and economic profits will _____. enter, decrease enter, increase exit, decrease exit, increase
Assume now that the demand for recycled paper increases and that the company is earning short-run...
Assume now that the demand for recycled paper increases and that the company is earning short-run economic profits. Relative to this short-run situation, explain what happens to profits in the long run and why?
Assume that the market for bottled water is purely competitive. Currently, firms selling bottled water are...
Assume that the market for bottled water is purely competitive. Currently, firms selling bottled water are earning normal profits. In the long run, we can expect this market's supply curve and demand curve to remain unchanged demand curve to decrease supply curve to increase demand curve to increase and supply curve to decrease
1. Suppose a purely competitive firm was making a profit (or loss) in the short run....
1. Suppose a purely competitive firm was making a profit (or loss) in the short run. As they move into the long run, what happens? Explain thd process fully with graphs. 2. What is the purely competitive firm's short run supply curve? (Use a graph and explain what you are depicting).
Suppose a purely competitive firm was making a profit (or loss) in the short run. As...
Suppose a purely competitive firm was making a profit (or loss) in the short run. As they move into the long run, what happens? Explain the process fully with graphs.
Wheat is produced under perfectly competitive conditions. Individual wheat farmers have U-shaped long-run average cost curves...
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 $4 per bushel when 2,000 bushels are produced. a) Suppose that the market demand curve for wheat is given by Q = 2,600,000 - 200,000P. In long-run equilibrium, what will be the equilibrium price, quantity, and number of wheat producers? b) Suppose market demand shifts outward to Q = 3,200,000 - 200,000P. If farmers cannot adjust their...
Wheat is produced under perfectly competitive conditions. Individual wheat farmers have U-shaped long-run average cost curves...
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 $4 per bushel when 2,000 bushels are produced. a) Suppose that the market demand curve for wheat is given by Q = 2,600,000 - 200,000P. In long-run equilibrium, what will be the equilibrium price, quantity, and number of wheat producers? b) Suppose market demand shifts outward to Q = 3,200,000 - 200,000P. If farmers cannot adjust their...
Suppose that in the short-run market demand in a monopolistically competitive industry that is characterized by...
Suppose that in the short-run market demand in a monopolistically competitive industry that is characterized by firms with identical cost functions rises. How does this short-run increase in demand affect the monopoly power of any individual firm in the long-run?
A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases: A....
A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases: A. in the long and short runs, prices and profits will be lower relative to what they were before the demand increase. B. in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit. C. in the short run, prices and profits will fall, but...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT