Assume that apples are produced in a perfectly competitive market. Grande’s Orchard is a typical firm that grows and sells apples. Currently, Grande earns zero economic profit, and the market price of apples is $10 per bushel.

(a) Draw a correctly labeled graph showing Grande’s demand curve, average total cost curve, and marginal cost curve, and show the profit-maximizing quantity, labeled QG .

(b) Suppose an increase in the popularity of apple cider increases the demand for apples. How will the increase in the demand for apples affect Grande’s economic profit in the short run? Explain.

(c) What will happen to Grande’s economic profit in the long run? Explain.

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a In a genuine market an ordinary associations interest yield is fixed at market value resulting in ... View the full answer