Microeconomics

6.) "Since peaking in 1976, per capita beef consumption in the United States has fallen by 28.6 percent... [and] the size of the U.S. cattle herd has shrunk to a 30-year low."

a.) Using firm and industry diagrams, show the short-run effect of declining demand for beef. Label the diagram carefully and write out in words all of the changes you can identify.

Would the shrinking of the herd lower marginal costs? I'm not so sure about this one.

b.) On a new diagram, show the long-run effect of declinding demand for beef. Explain in words.

Wouldn't the long run effect just be the firm decreasing the quantity supplied?

9.) Suppose that the U.S. textile industry is competitive, and there is no international trade in textiles. In long-run equilibrium, the price per unit of cloth is $30.

a.) Describe the equilibrium using graphs for the entire market and for an individual producer.

Now suppose that textile producers in other countries are willing to sell large quantities of cloth in the United States for only $25 per unit.

b.) Assuming that the U.S. textile producers have large fixed costs, what is the short-run effect of these imports on the quantity produced by an individual producer? What is the short run effect on profits? Illustrate your answer with a graph.

Even though I have no idea what graph to use, I imagine given that the firm has large fixed costs, they'd decrease production and take a hit on profits.

c.) What is the long-run effect on the number of U.S. Firms in the industry?

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  1. 6a) With shrinking beef consumption, which beef production operations (including ranchers, and meat packagers) will be shut-down? The high-cost producers or the low-cost producers? I would go with 'yes', marginal costs will be lower.

    b) I agree.

    9a) In a competitive industry, the demand curve FACED BY A SINGLE FIRM, is simply a flat line. In this example demand, firm demand=price=$30. The firm has rising marginal costs, so the firm produces where MC=P.

    9b) drop the demand line to $25. Producer surplus is represented by the area above MC but below price, With the drop to $25, what happened to that area? Profits would be producer surplus less fixed costs (which are not represented on the graph). Since producer surplus got smaller, the firm took a hit on profits.

    9c) Switch graphs, now graph an industry-wide supply curve (of domestic producers).

    9b)

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