Question

A representative firm producing watermelons is earning a normal profit at a price of 535 per hundred pounds. Draw asupply and demand diagram showing equilibrium at this. price. Assuming that the industry is a constant-cost industry, usethe diagram to show the long-term adjustment of the industry as demand falls over time. Explain the adjustmentmechanism.

Answer 1

All sketches and explanations are attached.

Step-by-step explanation:

A representative firm producing watermelons is earning a normal profit at a price of 535 per hundred pounds. Draw asupply and demand diagram showing equilibrium at this. price. Assuming that the industry is a constant-cost industry, usethe diagram to show the long-term adjustment of the industry as demand falls over time. Explain the adjustmentmechanism.

All sketches and explanations are attached.