1. The production of agricultural production like wheat is one of few examples of an industry that has many of the characteristics of a perfectly competitive industry. In a study released by the U.S. Department of Agriculture in 1998, the average variable cost per acre planted with wheat was $107 per acre with a yield of 50 bushels per acre.

If the average price received by what farmers in 1998 was $2.95 per bushel, do you think the average farmer would have ceased production in the short-run? Explain your response.

2. Explain why a firm in a perfectly competitive industry will earn normal (zero) economic profit in the long-run.

3. Explain why a firm in a perfectly competitive industry is a price-taker.