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Consider the perfectly competitive timber industry. It is initially in long run equilibrium at quanitity Q 0 and P 0 a) Draw a supply and

  1. Consider the perfectly competitive timber industry. It is initially in long run equilibrium at quanitity Q0 and P0

a) Draw a supply and demand diagram for the timber market showing the equilibrium

b) Draw a diagram for a typical logging firm in its initial long run equilibrium, showing tis Marginal Cost, Average total Cost, and Long Run Average Cost Curves. Are any profits being made by the firm?

c) A major use for timber is the creation of paper products. Suppose that a ban on disposable plastic shopping bags substantially increases demand for paper bags. By making updates to your diagram from part a) explain what impact the ban on plastic bags would have on the timber market? By making updates to your diagram on part b) to show how a typical firm reacts to this new situation. Are any profits being made by the firm?

d) Explain how this industry adjusts to its long run equilibrium by making further updates to your diagrams from parts a) and parts b) (You may assume it is a constant cost industry)

2.Suppose that Corn producers throughout the Midwest United States experiences unusually good weather and so produce a larger than normal harvest, some of which gets exported to Canada. Explain using a diagram how this harvest will affect Canadian Corn farmers?

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