Suppose there is a market for a particular type of wheat that is produced by a large number of small farms. The market demand for wheat is given by the following inverse demand curve:

P = $500 - Q

where P is the price of wheat (in dollars per ton) and Q is the quantity of wheat (in tons). The marginal cost of production for each farm is given by the following curve:

MC = $100 + Q

where MC is the marginal cost of production (in dollars per ton).

1. What is the competitive equilibrium price and quantity in this market?

2. Suppose that the government imposes a price floor of $400 per ton in this market. How will this policy affect the quantity of wheat produced and consumed, the total surplus in the market, and the number of farms in the market?

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