Save&Exit; There are 300 purely competitive farms in the local dairy market. Of

Question

Save&Exit; There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $30 for every $600 invested. Instructions: Enter your answers as whole numbers a. What is the percentage rate of return for these 298 dairies? b. The other two dairies have a cost structure that generates profits of $56 for every $400 invested. What is their percentage rate of return? c. Assuming that the normal rate of profit in the economy is 10 percent, and firms cannot copy each other's technology, will there be entry or exit? IClick to select) Will the change in the number of firms affect the two that earm $56 for every $400 invested? (Click to select) B What will be the rate of return eaned by most firms in the industry in long-run equilibrium? If firms can copy each other's technology, what will be the rate of retum eventually earned by all firms? percent peroent percent. percent. 8 5 6 8

Explanation / Answer

Percentage Rate of return = Profit / Amount Invested

a) Percentage rate of return for these 298 firms = $24 / 600

= 0.04 or 4%

b) Percentage rate of return for other two firms = $56 / 400

= 0.14 or 14%

c) There will be exit because 298 firms rate of return is 4% which is lower than normal rate i.e 10%

Yes, the change in number of firms will affect the two firms because with the exit of some firms, the price will increase leading to higher revenue for these firms.

In long run equilibrium, most firms will earn the normal rate of profit i,e 10%

If firms can copy each other technology then eventually all firms will earn same rate of return i.e 10%.

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