Consider a small firm, "Fresh Farm Produce," that operates in a perfectly competitive

market. The market price for organic carrots is set by the market and is currently $2.50 per pound.

Fresh Farm Produce can sell as much as it wants at this market price. (Note, while you do not need

to show any numerical calculations to answer this question, you may find it helpful to draw a graph!)

A. Explain why Fresh Farm Produce is considered a "price taker" in this market.

B. Explain what actions the firm should take to maximize profits under these market conditions.

C. Describe how a sudden increase consumer tastes for organic vegetables could impact market

dynamics in the short run (specifically you should consider the market price and Fresh Farm

Produce's optimal production level).

D. Consider the long-term implications if the increase in reservation prices is permanent. What

might happen to the number of firms in this market over time? What might happen to the

market price over time?

E. Using your own knowledge of produce markets and the assumptions we discussed in class, discuss

whether it is a good assumption that Fresh Farm Produce operates in a perfectly competitive

market.