Question

Five hundred small almond growers operate in areas with plentiful rainfall. The marginal cost of producing almonds in these locations is given by MC = .02Q, where Q is the number of crates produced in a growing season. Three hundred almond growers operate in drier areas where costly irrigation is required. The marginal cost of growing almonds in these locations is given by MC = .04Q.

A. What is the individual supply curve for each type of almond grower?
B. "Add up" the individual supply curves to derive the market supply curve.
C. If the market demand for almonds is Qa = 105,000 – 2,500P, what will the equilibrium price of almonds be?
D. How many almonds will each type of almond grower produce at that price?
E. Find producer surplus by each type of grower.
F. Find producer surplus by the entire market.

Answer 1

Step-by-step explanation:

Where Price equals marginal cost ( MC ) , supply will be made .

A ) Supply curve for rainfed area almond growers

P = .02 Q

Q = 50 P

Supply curve for drier area growers

P = .04 Q

Q = 25 P

B ) No of growers of rainfed area = 500

no of growers of dry area = 300

Total supply = Qs = 50 P x 500 + 25 P x 300

= 25000 P + 7500 P = 32500 P

C )

Market demand Qa = 105000 - 2500 P

For equilibrium Qa = Qs

32500 P = 105000 - 2500 P

35000 P = 105000

P = 3

D ) Qs = 32500 x 3 = 97500 .

E ) amount by rainfed growers

= 500 x 50 x 3 = 75000

amount by dry area growers = 300 x 25 x 3 = 22500