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A farmer can sell as many bushels of apples as she wants at a Price of $6, but if she increases price at all, her quantity sold drops to zero.

A farmer can sell as many bushels of apples as she wants at a Price of $6, but if she increases price at all, her quantity sold drops to zero.

1. How do you know the farmer is in a Perfectly Competitive market?

2. Draw a graph of the marginal revenue curve for the farmer.

3. Suppose the farmer is currently making positive profits.

a. Is the farmer in the short-run or long-run?

b. Will firms enter or exit this market?

Part II- Now suppose that the farmer is making a loss. The MR=MC at a price of $6, and the quantity produced at this point is 10. Fixed costs are $25, and the average variable cost for 10 units is $4.50.

4. What is the amount of the loss? (show calculations)

5. Should the farmer operate in the short-run? Explain.

6. Should the farmer operate in the long-run? Explain.

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