Tutorial 9 Industry Application Questions PDF

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Tutorial 9 – Industry Application Questions(all students answer all these questions, whether they have been assigned the Grain industry or not) Is it possible for a firm in a perfectly competitive industry to make an economic profit or an economic loss in the long run? Explain, using a diagram. 10 m...

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Tutorial 9 – Industry Application Questions (all students answer all these questions, whether they have been assigned the Grain industry or not) 1. Is it possible for a firm in a perfectly competitive industry to make an economic profit or an economic loss in the long run? Explain, using a diagram. 10 marks In the long run a firm cannot be subject to economic profit or loss, as both are only a short-run occurrence. When a market increases its economic profits, new firms will enter the market, shifting the supply curve to the right which reduces price and then profits will reduce as well. When this profit decrease occurs within the market, the firms that are not making the money will have decreased profits and therefore start leaving the market. This decrease in firms will have a supply curve shift to the left which will continue until all firms have an economic profit of zero, therefore having no loss.

2. Explain the economic efficiency of the grain industry, using a diagram.

6 marks

Productive efficiency is when the economy does not allow the production of one product, due to another product being over produced. For the grain industry, the production of wheat would be sacrificed over the production of grain; however, this efficiency method is not used within the economy as both wheat and grain production are vital to the supply and demand of each product. This also includes the economic decision to produce using the least costly production methods, which for the grain industry could mean reducing capital allocation for the harvest of the grain. Allocative efficiency is the process where the allocation of resources is being distributed depending on the consumers desire, this can be achieved by the P=MR=MC. If there is under-allocation, P will be more than MC, whereas over allocation will result in P...