There are 10,000 corn farmers in the corn market. If each of them has the same production technology as Chris, the individual farm marginal cost in the short run is ????????=12????.
a) What will the market supply curve look like? Explain your answer.b) If the market demand for corn is ????=2-120000????, what are the short run equilibrium price and quantity of corn sold in a competitive market? Show your work and illustrate this equilibrium on a graph. (Place your graph in this space.)
c) Corn farmers are lobbying the government to introduce a law that would allow them to create a corn marketing board. The marketing board would become the sole supplier of corn, and it would enable corn farmers to act as a cartel. What price would this cartel charge if it wanted to maximize profit? How much corn would the cartel supply? Show this price and quantity on the graph you drew in part b).
d) List one reason that individual farmers would have for supporting and one reason that they would have for opposing the formation of the cartel.
e) Would this cartel be stable in the short run? How about in the long run? Discuss.
f) If we know the demand for corn food products by low income households is inelastic, discuss the implications of the new price of corn for the well-being of low income people.