a) Apples are bought and sold in a competitive market.
I. Use a graph for the apple market and a graph for an individual firm to demonstrate that firms are earning economic profits.
ii. Explain, without using a diagram, whether the situation in (a) can be maintained in the long run.
b) A student argues: The economic model of a perfectly competitive market is very unrealistic because it predicts that firms in a perfectly competitive market earn zero profits in the long run. However, in reality, no firm would stay in business if it earned no profits. Do you agree or disagree? Explain.