# Supply and Demand and Total Profit

Pages: 4 (961 words) Published: October 22, 2011
Question 6
Use Figure 6.5 to determine:

a)      How many baskets of fish should be harvested at market prices of                                 i.            \$9?

The farmer should harvest 3 baskets in order to gain the maximum profit.

ii.            \$13?

The farmer should harvest 4 baskets in this case to maximize profits.

iii.            \$17?

The farmer should maximize profits by harvesting 5 baskets at \$17.

b)      How much total revenue is collected at each price? Total revenue = price x quantity

i.               Total Revenue = \$9 x 3 = \$27                            ii.               Total Revenue = \$13 x 4 = \$52                          iii.               Total Revenue = \$17 x 5 = \$85

c)      How much profit does the farmer make at each of these prices? Total Profit = Total Revenue – Total Costs
i.            Total Profit = \$27 - \$31 = -\$4                               ii.            Total Profit = \$52 - \$44 = \$8                             iii.            Total Profit = \$85 - \$61 = \$24

Q7:  Suppose the typical catfish farmer was incurring an economic loss at the prevailing price p1.   What forces would raise the price?
Prices would be raised if other catfish farmers drop out of the market. This will make the market supply shift to the left and therefore result in higher prices. What price would prevail in long-term equilibrium?

The price that equals the level of minimum average total costs will be the prevailing price in the long-term equilibrium position. Illustrate your answers with separate graphs for the catfish market and typical farmer.

Q8:  Graph the market behavior described in the Headline on p. 131.
The behavior described in the Headline on p. 131 is one in which numerous firms have entered the marketplace and driven the price of the product down.  The graph below illustrates...