Micro · FRQ Trainer

A profit-maximizing firm operates in a perfectly competitive market for wheat. The market is currently in long-run equilibrium. (a) Draw a correctly labeled side-by-side graph for the wheat market and the individual firm, showing price, output, and average total cost (ATC). (b) A new medical study is published revealing immense health benefits of consuming wheat. On your graphs, show the short-run effect of this study on market price, market quantity, firm price, and firm quantity. Shade the area of the firm's short-run economic profit. (c) Explain what will happen to the number of firms in this market in the long run, and how that will affect the market price and the individual firm's economic profit.