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23 August, 13:32

Five hundred small almond growers operate in areas with plentiful rainfall. The marginal cost of producing almonds in these locations is given by MC = 0.02Q, 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 = 0.04Q. A. What is the individual supply curve for each type of almond grower? (Hint: remember that supply is the relationship between the quantity supplied and price). b. Using the individual supply curves from part a), derive the market supply curve. c) If the market demand for almonds is Qd = 105,000 - 2,500P, what will the equilibrium price of almonds be? The equilibrium quantity?

d) How many almonds will each type of almond grower produce at that price?

e) Verify that the total production of all almond growers equals the equilibrium quantity you found in part (c).

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  1. 23 August, 15:06
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    a. The almonds growers will supply the quantity at which price is equal to the marginal cost. For growers with plentiful rainfall, MC = 0.02Q.

    P = 0.02Q

    Q = 50P

    For almond growers that operate in drier areas, MC = 0.04Q

    P = 0.04Q

    Q = 1/0.04 * P

    Q = 25P

    b. Market supply curve will be the number total supply multiplied by the growers.

    Qs = 500 (50p) + 300 (25p)

    = 25000p + 7500p

    = 32500p

    c. To find the equilibrium price, quantity demanded must equate the quantity supplied.

    Qd = 105,000 - 2,500P

    Qs = 32500p

    Qd = Qs

    105,000 - 2500p = 32500p

    32500p + 2500p = 105000

    35000p = 105000

    p = 105000/35000

    p = 3

    Equilibrium Price = 3

    Since Q = 32500p

    Q = 32500 * 3

    Equilibrium quantity = 97500

    d. For growers with plentiful rainfall

    Q = 25000p

    = 25000 * 3

    = 75000

    For almond growers that operate in drier areas, they will produce:

    Q = 7500p

    = 7500 * 3

    = 22500

    e. To verify that the total production of all almond growers equals the equilibrium quantity you found in part (c) will be:

    75000 + 22500 = 97500

    97500 = 97500

    It has been verified. It is correct.
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