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Economics
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21 Oct 2018

Suppose demand is P = 600 — Q and supply is P = Q in the soybean market, where Q is tons of soybeans per year. The government sets a price support at P = $500/ton and purchases any excess supply at this price. In response, as a long-run adjustment, farmers switch their crops from corn to soybeans, expanding supply to P = (1/2)Q.

A. Without the influence of price control, what are the equilibrium price and equilibrium quantity in the market

B. Now assume price control. In short run, how much will the govt. spend to purchase surplus soybeans

C. In response to this situation, as a long run adjustment, farmers switch from crops to soybeans, expanding supply to P=(1/2)Q

a. Why do they do this?
b. Does your answer to B change at all?

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Bunny Greenfelder
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22 Oct 2018
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Related questions

The daily demand for travel at a small regional airport is initially QD = 1000 - p; where quantity is in passengers and price is in dollars per passenger. There are initially 10 price-taking firms serving this market and each of them has the production function: q = sqrt (lk) where q is in passengers, and labor and capital are in some appropriately specified units. The price of a unit of labor is w = 100 per day; the price of a unit of capital is v = 100 per day, and this industry has constant costs. Each firm initially has a capital stock of k0 = 80. day; and this industry has constant costs. Each firm initially has a capital stock of k0 = 80.

(a) Derive the short-run cost function, SC(q), for each firm in the market.

(b) Derive the short-run market supply function, QS.

(c) Find the short-run competitive equilibrium price, p*, and quantity, Q*. How much labor, L*, does the industry employ at the competitive equilibrium?

(d) Derive the long-run cost function, C(q), of each firm in the industry.

(e) Describe the long-run market supply curve. Does the short-run competitive equilibrium at (Q*; p*) also correspond to a long-run competitive equilibrium? Explain why or why not.

Now, imagine that a catastrophic event causes the daily demand for air travel in this market to fall unexpectedly to ~QD = 750 - p Continue to assume that each of the 10 firms has a capital of k0 = 80 in the short run.

(f) Find the new short-run competitive equilibrium price, p**, and quantity, Q**, in this market. How much labor, L**, does the industry employ in the new short-run competitive equilibrium?

(g) What is the new long-run competitive equilibrium price, p***, and quantity, Q***? Describe what must happen as the industry moves from the short-run competitive equilibrium at (Q**; p**) to the long-run competitive equilibrium at (Q***; p***). How much labor L*** does the industry employ at the new long-run equilibrium?

Your firm is one of 100 identical firms operating in the short run in a perfectly competitive market. Your total cost function (short run and long run) is C = 800 + 25 q + 0.5 q2, and your marginal cost function is MC = 25 + q. The (short run and long run) market demand curve is given by Q = 2,750 – 5P. a.Find the supply curve for your firm. Show work. Then, find the short-run market supply curve. Show work. b.Find equilibrium price, P*, and quantity, Q*, in the market in the short run.Show work. c.Find the lowest price at which your firm will not exit the market in the long run.Show work. Referring to your answer in part b, should your firm exit the market in the long run if P* in the market does not increase over time?Explain. d.If you choose not to exit, how many firms (including your own) do you expect to be in the market in the long run?Show work, and explain.

Suppose that the demand for broccoli is given by:

Demand: Q= 1,000 - 5P

Where Q is quantity per year measured in hundreds of bushels and P is price in dollars per hundred bushels. The long-run supply curve for broccoli is given by

Supply: Q= 4p - 80

A) Show that the equilibrium quantity here is Q=400. At this output, what is the equilibrium price? How much in total is spent on broccoli? What is consumer surplus at this equilibrium? What is producer surplus at this equilibrium?

B) How much in total consumer and producer surplus would be lost if Q=300 instead of Q=400?

C) Show how the allocation of the loss of total consumer and producer surplus between suppliers and demanders described in part b depends on the price at which broccoli is sold. How would the loss be shared if P=140? How about if P=95?

D) What would the total loss of consumer and producer surplus be if Q=450 rather than Q=400? Show that the size of this total loss also is independent of the price at which the broccoli is sold.

E) Graph your results.

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