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Assume agricultural products are identical and there are many sellers and buyers of agriculture products:State the profit maximizing condition for each seller of agricultural products.Graphically, show the market equilibrium of the industry and a seller where economic profits equal zero. Please include marginal revenues, demand curve, price and quantity at the equilibrium.From part b above, if the number of buyers increases, show the new short run equilibrium for a seller and the industry as a whole.

Question

Assume agricultural products are identical and there are many sellers and buyers of agriculture products:

  1. State the profit maximizing condition for each seller of agricultural products.
  2. Graphically, show the market equilibrium of the industry and a seller where economic profits equal zero. Please include marginal revenues, demand curve, price and quantity at the equilibrium.
  3. From part b above, if the number of buyers increases, show the new short run equilibrium for a seller and the industry as a whole.

 

 

 

check_circleAnswer
Step 1
  1. It is given that, the agricultural products are identical and there are many buyers and sellers of agriculture products in the market; therefore, the agricultural product market could be considered as a perfectly competitive market where the demand curve of an individual (each) seller is horizontal and the profit maximization condition could be obtained by equating the market price (P) of the agricultural products to the sellers’ marginal production cost (MC), i.e., P = MC. Further, at the point P =MC, the sellers’ average cost (AC) curve must be tangent to the market price line (which is same as the demand curve for agricultural products) and the MC must cut AC from its minimum point.
Step 2

2. The following diagrams depict the market equilibrium of an individual seller and the whole industry in the perfectly competitive market where the economic profits are zero.

IADNOSAL SELLE
WHOLE HAKET
NC.
(nst)
Me= EHe
(Markt Supply
(ongmet
Spas
P HR
Fe
Praduter
Suind
()
Nd
Hasket danand)
dihdual Cellez (4)
auontity fmdu
Econemic fohitr
(EP) D
Price of Agricutreal Pralucli (0
of Aridtual
)ompas
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IADNOSAL SELLE WHOLE HAKET NC. (nst) Me= EHe (Markt Supply (ongmet Spas P HR Fe Praduter Suind () Nd Hasket danand) dihdual Cellez (4) auontity fmdu Econemic fohitr (EP) D Price of Agricutreal Pralucli (0 of Aridtual )ompas

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Step 3

Here in the aforementioned diagram, P depicts the price of the agricultural products for an individual seller which is considered as the market price of the whole industry, Qs is the quantity produced by an individual seller, Qm is the quan...

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