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    Short-Run Firm Supply

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    Farm Fresh Inc supplies sweet peas to canneries located throughout the Mississippi river Valley Like many grain and commodity markets, the market for sweet peas is perfectly competitive. With $250,000 in fixed costs, the company's total and marginal costs per ton (Q) are
    TC=4250,000 = $200Q + $0.02Q2 (2 = Square because In do not have the option)
    MC = (triangle)TC/TraiangleQ =$200+$0.04Q

    A. Calculate the industry price necessary to induce short-run firm supply of 5,000, 10,000, and 15,000 tones of sweat peas. Assume that MC> AVC at every point along the firm's marginal cost curve and that total costs include a normal profit.
    B. Calculate short-run firm supply at industry prices of $200, $500 and 1,000 per ton.

    The answers are A Q=5,000, P=$400
    Q=10,000, P=$600
    Q=15,000, P=$800

    B answers
    P=$200, Q=o
    P=$500, Q=7,500
    P=1,000, Q=20,000

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    Solution Preview

    Answer A:
    Putting Q = 5,000; 10,000 and 15,000 in the MC curve we get:
    MR = P = MC = 200 + ...

    Solution Summary

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