Intermediate Microeconomics: A Modern Approach, Seventh Edition

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Econ 301 – F07 PROBLEM SET 6 - Tuesday Nov 20 in class OR get to Jiyoun's office door before you leave on Wednesday Nov 21 Wissink 1. Critically evaluate the following statements and explain in what way or ways they are true, false, or uncertain. a. If an entrepreneur's firm is earning zero accounting profit, then it should really consider getting out of the market. b. If a perfectly competitive industry is an external constant cost industry, then the normal long run equilibrium price will never change. c. All fixed costs are avoidable in the short run if you choose to shut down. 2. Assume that the U.S. sugar cane industry is: 1) perfectly competitive, 2) presently in long-run equilibrium, 3) an external constant-cost industry, 4) such that each farm has a set of "typically" shaped cost curves (in particular this means that short-run supply is typically shaped), 5) such that all cane farms are the same, 6) such that sugar cane demand is typically shaped. a. Graph the present long-run equilibrium situation for both a typical plant and the entire industry. b. Let the demand for sugar cane decrease because of public concern about child obesity. Explain and indicate on the graphs for the previous part, what happens in the short-run and what must happen for the industry to be in long-run equilibrium once again.
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