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26. Many of the people living with incomes below the global poverty line (around $500/person) are farmers. Max decides that he wants to help peanut
26. Many of the people living with incomes below the global poverty line (around $500/person) are farmers. Max decides that he wants to help peanut farmers in a competitive market earn larger profits from their crops and invent a new method that helps conserve fertilizer and lower costs. (Some WEE. actually did some research like that.) This problem is about the short run and long run consequences. Suppose that before Max introduces the new method each farm has these costs. The farms are all assumed to be identical for simplicity. MCCq) = Zq + 12 9 ATC(q) = 5+ 12 +q Fixed cost = $9 The units are all in kgs or S/kg. A.) What is an individual farm's supply curve? a. q(P) = 0.5.D - 2 b. q(P) = 0.5P + 2 c. q(P) = 0.5.\" 6 d. qCP) = 0.5P + 6 B.) (continued) There are four farms so what is the short run market supply curve? Combine that market supply with this estimated market demand, 00') = 60 P, to find the market price. Determine how much each firm produces and what each rm makes in profit. n=5_ C.) Now you introduce the new method which reduces the variable costs. As a result the MC and ATC are lower: MCCq) = 2q+ 6 9 ATC(q) = E+6+ q Repeat the steps above to find the new short run equilibrium. How much prot does each rm now make? (this should be higher) D.) What will happen in the long run as farmers are allowed to enter or exit? Check the boxes below for the variables that will decrease in the long run compared to the short run equilibrium found in part c N, the number of firms P, the market price q, the quantity each firm produces It, the profit of an individual firm ATC, the average total cost of each firm
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