Callahan's Orchard grows apples and operates in a constant-cost, perfectly competitive apple industry. Callahan's Orchard is currently in a long-run equilibrium.
(a) Draw correctly labeled side-by-side graphs for the apple market and Callahan's Orchard, and show each of the following.
(i) Market output and price, labeled as Qm and Pm, respectively
(ii) Callahan's output and price labeled as Qf and Pf, respectively
(b) Now assume that the government provides farm support to apple growers by granting an annual lump-sum subsidy to all apple growers, Indicate the effect the subsidy would have on each of the following in the short run.
(i) Callahan's quantity of output. Explain.
(ii) Callahan's profit
(iii) The number of Firms in the industry
(c) Indicate how each of the following will change in the long run as a result of the lump-sum subsidy.
(i) The number of firms in the industry. Explain.
(ii) Price
(iii) Industry output