Answer to Question #68288 in Microeconomics for Mary

Question

Using an economic model that includes both a typical firm/farm in a perfectly competitive market and market supply and demand curves, explain what will happen to the equilibrium price for pork and economic profits of firms/farms in the short run and in the long run.

Answer 1

If the equilibrium price for pork is higher than firm's average total cost at profit-maximizing quantity of production, then firms in the market will receive economic profits and new firms will enter the market until in the long run all firms receive zero (normal) profits. . If the equilibrium price for pork is lower than firm's average total cost at profit-maximizing quantity of production, then firms in the market will face economic losses and new firms will exit the market until in the long run all firms receive zero (normal) profits.