hi, i have this question for my class and the truth is that i am not doing very well in this class so it would be very helpful if i get the answers right this time i have answered it myself but i just want to make sure and see what others think because i really need to get a good grade on this one so if anyone has any answers i will appreciate it..
Assume the market for beef is perfectly competitive, and is currently in long-run equilibrium. The demand curve for beef slopes down, and the supply curve slopes up.
a. Show this situation on two well-labeled graphs-one for the beef market as a whole, and one for the beef market as a whole, and one for a typical firm in the market. In the firm graph, clearly indicate ATC, MC, MR, AR, P, and profits (or losses) if any.
b. For the short run, draw the supply schedule for a typical firm in this market, show the resulting situation in the short run.
Now assume that the price of chicken, a substitute for beef, has increased.
c. One new graph of the beef market and a firm in that market, show your resulting situation in the short run.
d. Explain, using your graphs from part c for the market and firm, what will happen in the long run
Individual firms in the beef market would have upward sloping mc curves and a horizontal mr curve (which is also the price and demand curve). The point where Mc=Mr will be at the minimum efficient scale and will determine output (ac). AC=TC/Q. If the price of chicken (a substitute) increases, then there will be a rightward shift in the demand for beef leading to supernormal profits (short-run). This, in turn, will induce market entry and bring profits back to the normal rate (long-run). Also known as quasi-rents (demand spikes before supply responds).
and this one is a little more involved, so here I will only say that the answer to your question is fully discussed here: