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AP Micro/Econ Homework Question?
How would I draw a diagram that includes the following.
1. Corn is used as food and as an input in the production of ethanol, an alternative fuel. Assume corn is produced in a perfectly competitive market.
a. Draw correctly labeled side-by-side graphs for the corn market and a representative corn farmer. On your graphs show each of the following:
i. The equilibrium price and quantity in the corn market, labeled PM and QM, respectively
ii. The profit-maximizing quantity of corn produced by the representative farmer earning zero economic profit, labeled QF
b. Assume the demand for ethanol decreases. On your graphs in part (a) show what will happen to each of the following in the short run.
i. The market price and quantity of corn, labeled P* and Q*
ii. The area of the profit or loss earned by the representative corn farmer, shaded completely.
c. Relative to your answer in part (b), state what will happen to the market equilibrium price and quantity of corn in the long run. Explain.
- OiyLv 72 months ago
At the corn market for farmers, you will have three supply curves. One is the marginal cost curve which represents the total production of corn. This total supply curve will be divided into two supply curve, the food market and the input market. A farmer is a price taker in the corn market. The profit maximization will follow the rule of MC=MR=price.