-The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. The market is initially in a long-run equilibrium, where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the short run, the price falls to $2.50 per bushel. In the long run, the price of corn is ________ and a typical farm produces ________ bushels of corn.

Question

Quizplus · Accepted Answer

In the long run, a perfectly competitive market returns to equilibrium where price equals the minimum average total cost. Since the initial long-run equilibrium price was $3.00, the market will return to this price, and the typical farm will produce the quantity where MC equals ATC, which is 300,000 bushels.

-The Figure Above Shows a Typical Perfectly Competitive Corn Farm