Questions 6 through 11 ask you to consider the general impact of the war in Ukraine on the market for wheat. The April 30, 2022 issue of The Economist had an article titled "Can Brazil help with food shortages around the world?". Do not have to read the story to understand the setup of these questions.

For this analysis, assume the wheat market is perfectly competitive, demand is downward-sloping, supply is upward-sloping, and production technology results in traditional U-shaped ATC and AVC.

• Finally, for all questions, assume market price is alwaysgreater than the minimum of the AVC.

Question 6:

Assume that prior to the outbreak of the war in Ukraine, the wheat market was in Long Run Equilibrium (LRE).

• Using the side-by-side graph methodology (with market on the left and individual firm on the right), graphically depict the market equilibrium P₀ and Q₀, the optimal output of an individual firm representative of the other firms in the industry at this LRE (labeled as q₀), and the individual firm's profit ₀, if any (shaded and clearly labeled).

Question 7:

Provide a brief narrative explaining the conditions that must be satisfied, including the profitability of an individual firm, in a perfectly competitive industry's LRE. Explain what the firm's economic profit is in this state and how it is achieved. Refer to graph in Question 6.

Question 8:

Assume the war significantly reduces the supply of wheat and that there are no changes to the demand for wheat.

• On the same graph that is produced in Question 6, graphically depict any changes affecting the market for wheat and any changes that impact the individual firm.
• Show the movements of the curves (if any) and the new Short Run Equilibrium (SRE).
• Indicate the new market equilibrium P₁ and Q₁, the optimal output of an individual firm representative of the other firms in the industry at this SRE (labeled as q₁), and the individual firm's profit ₁, if any (shaded and clearly labeled).

Question 9:

Provide a brief narrative explaining the movements and the resulting change in an individual firm's profit, if any. Address the changes in the market equilibrium quantity Q, market price P, and the individual firm's profit-maximizing quantity q, if any. Refer to graph in Question 8.

Question 10:

Assume the wheat market continues to experience the short-run supply disruption that is modeled in Question 8. However, farmers in the U.S. have been making planning decisions in the past few weeks and many are diverting land to wheat production away from corn and soybeans. The Economist article indicated that Brazilian farmers will make similar planting decisions, switching from corn and soybeans to wheat when they make their new season plans in September. Analyze the impact of this switch on the market for wheat.

• On the same graph that is produced in Questions 6 and 8, graphically depict any changes affecting the market for wheat caused by the decision of many U.S. farmers to grow more wheat.
• Assume that after these North and South American farmers ramp up their wheat production, the market will move to a new Long Run Equilibrium (LRE).
• Indicate the new market equilibrium P₂and Q₂, the optimal output of an individual firm representative of the other firms in the industry at this LRE (labeled as q₂), and the individual firm's profit ₂, if any (shaded and clearly labeled).
• Reminder: be sure to label all relevant points and axes.

Question 11:

Provide a brief narrative explaining the movements and the resulting change in an individual firm's profit, if any. Make sure to address the changes in the market equilibrium quantity Q, market price P, and the individual firm's profit maximizing quantity q, if any. Refer to graph in Question 10.