Economic for Market Structure
Q.5.1 a)
Figure 1:
Where there is a threat of bird flu which is a deadly disease spreading among chickens, the demand for chickens will decrease and the demand curve will shift to the left as shown in the figure 1. As a result, the equilibrium market price will decrease from P1 to P2 and the equilibrium market quantity will decrease from Q1 to Q2 in the short run.
Q.5.1 b)
Figure 2:
As the poultry in country X is perfectly competitive with the supply of chicken coming from both domestic firms and farms located in the neighboring country Y. When the government of country X forbids the import of chickens from country Y in order to prevent the spreading of bird flu, the supply of chicken in country X will decrease and the supply curve will shift to the left as shown in the figure 2. As a result, the equilibrium price will increase from P1 to P2 and the equilibrium quantity will decrease from Q1 to Q2.
Figure 3:
In a perfect competition, there are many sellers and buyers but each participant is insignificant relative to the market. Individual consumer or producer cannot affect the market price. They are price takers. The equilibrium market price is P1 as shown in the figure 3. A farm can sell a vast amount of at P1 without affecting the market price, implying the demand curve perceived by the firm is horizontal, i.e. perfectly elastic. In Marginal approach to profit maximization, the farm’s MR curve coincides with its demand curve, therefore P1 = MR1 as shown in the figure 3.
As the supply of chicken in country X decreases and the supply curve shifts to the left, the equilibrium market price increases from P1 to P2 as shown in the figure 2. Poultry industry is a perfect competitive market where P1 = MR1. The MR of a farm also increases from MR1 to MR2. In order to maximum profit, a farm will produce and sell the chicken where MR=MC and MC is rising. As a result, the output level of domestic farm increases from Q1 to Q2 as
Figure 1:
Where there is a threat of bird flu which is a deadly disease spreading among chickens, the demand for chickens will decrease and the demand curve will shift to the left as shown in the figure 1. As a result, the equilibrium market price will decrease from P1 to P2 and the equilibrium market quantity will decrease from Q1 to Q2 in the short run.
Q.5.1 b)
Figure 2:
As the poultry in country X is perfectly competitive with the supply of chicken coming from both domestic firms and farms located in the neighboring country Y. When the government of country X forbids the import of chickens from country Y in order to prevent the spreading of bird flu, the supply of chicken in country X will decrease and the supply curve will shift to the left as shown in the figure 2. As a result, the equilibrium price will increase from P1 to P2 and the equilibrium quantity will decrease from Q1 to Q2.
Figure 3:
In a perfect competition, there are many sellers and buyers but each participant is insignificant relative to the market. Individual consumer or producer cannot affect the market price. They are price takers. The equilibrium market price is P1 as shown in the figure 3. A farm can sell a vast amount of at P1 without affecting the market price, implying the demand curve perceived by the firm is horizontal, i.e. perfectly elastic. In Marginal approach to profit maximization, the farm’s MR curve coincides with its demand curve, therefore P1 = MR1 as shown in the figure 3.
As the supply of chicken in country X decreases and the supply curve shifts to the left, the equilibrium market price increases from P1 to P2 as shown in the figure 2. Poultry industry is a perfect competitive market where P1 = MR1. The MR of a farm also increases from MR1 to MR2. In order to maximum profit, a farm will produce and sell the chicken where MR=MC and MC is rising. As a result, the output level of domestic farm increases from Q1 to Q2 as