Question: Florida is the biggest sugar producing state but Michigan and Minnesota

Florida is the biggest sugar-producing state, but Michigan and Minnesota are home to thousands of sugar beet growers. Sugar prices in the United States average about 20¢ per pound, or more than double the world-wide average of less than 10¢ per pound given import quotas that restrict imports to about 15% of the U.S. market. Still, the industry is perfectly competitive for U.S. growers who take the market price of 20¢ as fixed. Thus, P = MR = 20¢ in the U.S. sugar market. Assume that a typical sugar grower has fixed costs of $30,000 per year. Total variable cost (TVC), total cost (TC), and marginal cost (MC) relations are:
TVC = $15,000 + $0.02Q + $0.00000018Q2
TC = $45,000 + $0.02Q + $0.00000018Q2
MC = TC/Q = $0.02 + $0.00000036Q
where Q is pounds of sugar, total costs include a normal profit.
A. Using the firm’s marginal cost curve, calculate the profit-maximizing short-run supply curve for a typical grower.
B. Calculate the average variable cost curve for a typical grower, and verify that average variable costs are less than price at this optimal activity level.

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  • CreatedFebruary 13, 2015
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