5.2 The Weinandt Family Farm in Wynot, NE raises livestock and grows crops. Commonly grown crops in Nebraska are corn and soybeans. Suppose you are helping a farm similar to the Weinandt Farm make decisions about how much corn to grow this year. As an agricultural product, the market for corn meets the requirements of a perfectly competitive market.

The original market demand (Qd1) and market supply (Qs) are given. Suppose the market demand shifts to Qd2 because, in addition to being used as a food product, corn is now used for ethanol production.

a. Using the market data provided, create a market supply and demand graph which includes both Qd1 and Qd2.

b. What are the market equilibrium price and quantity before and after the demand shift?

c. Using the firm cost and quantity data, find FC, VC, ATC, AFC, AVC, and MC.

d. Based on your answers in part c and

b, between which quantities should the farm aim to produce before and after the demand shift?

e. Using the lower of these two quantities, calculate TR, TC, and the firm’s economic profit or loss before and after the change in demand.

f. Will farms enter this market, leave the market, or remain constant after the demand shift? Explain your answer.

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A B D E G H J K L M 1 Qd (millions of bu) Qd (millions of bu) Qs (millions of bu) Price/bu Firm g (thousands of bu) TC FC VC ATC AFC AVC MC 2 0 400 6000 10 0 10000 3 200 800 5700 9.5 0.5 10128 4 400 1200 5400 9 I 10505 5 600 1600 5100 8.5 1.5 11133 6 800 2000 4800 8 2 12010 7 1000 2400 4500 7.5 2.5 13138 8 1200 2800 4200 7 3. 14515 9 1400 3200 3900 6.5 3.5 16143 10 1600 3600 3600 6 4 18020 11 1800 4000 3300 5.5 4.5 20148 12 2000 4400 3000 5 5 22525 13 2200 4800 2700 4.5 5.5 25153 14 2400 5200 2400 4 6 28030 15 2600 5600 2100 3.5 6.5 31158 16 2800 6000 1800 3 7 34535 17 3000 6400 1500 2.5 7.5 38163 18 3200 6800 1200 2 8 42040 19 3400 7200 900 1.5 8.5 46168 20 3600 7600 600 1 9 50545 21 3800 8000 300 0.5 9.5 55173