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Perfectly Competitive Business Decisions: Orange Juice

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In the perfectly competitive market for orange juice concentrate the current market price is $2.19 per gallon.

a. A firm will maximize profits when its Marginal Costs per gallon are $__
b. Favorable conditions produce a record high harvest yield. We would expect the short-term market price per gallon to ___.
c. An unexpected deep freeze lowers the harvest yield. We would expect the short-term market price per gallon to ___.
d. Following such a freeze, in the short term, what should an individual firm do regarding its Marginal Costs to maximize its profits?
e. Labor costs go up, but market price stays at $2.19 per gallon. What will the firm need to do relative to the size of its workforce in order to maximize its profits?

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a) $2.19
b) Fall, because the market supply curve has shifted to the right, decreasing the ...

Solution Summary

This solution illustrates the decisions that a perfectly competitive seller of orange juice must make when confronted with changing market conditions.

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Pricing and Output Decision Making

Respond to the following:

a. In certain industries, firms buy their most important inputs in markets that are close to perfectly competitive and sell their output in imperfectly competitive markets.
b. Cite as many examples as you can of these types of businesses.
c. Explain why the profits of such firms tend to increase when there is an excess supply of the inputs they use in their production process.

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