1. Com is used as food and as an input in the production of ethanol, an alternative fuel. Assume cor is produced in perfectly competitive market, (@) Draw correctly labeled side-by-side graphs for the corm market and a representative com farmer. On your sraphs show each of the following, (@ The equilibrium price and quantity in the com market, labeled Py, and Qy,, respectively Gi) The profit- maximizing quantity of com produced by the representative farmer earning zero economic profit, labeled Qe (b) Assume the demand for ethanol increases, On your graphs in part (a) show what will happen to each of the following in the short run. () The market price and quantity of corn, labeled P” and Gi) The area ofthe profit or loss earmed by the representative corn farmer, shaded completely. (©) Relative to your answer in part (b), state what will happen to the market equilibrium price and quantity of ‘com in the tong run, Explain, (@ Soybeans are produced in a perfectly competitive market. Assume farmers can grow either com or soybeans ‘on the same land. What happens to the price of soybeans in the next planting season if the price of cor increases? Explain. (©) Assume instead that the government sets a binding price ceiling in the corn market. Draw a new correctly labeled graph for the corn market and show each of the following. @ The binding price ceiling, labeled P, Gi) The quantity purchased by consumers inthe com marke, labeled Q,AP® MICROECONOMICS 2017 SCORING GUIDELINES ‘Question 1 10 points (442414142) MARKET FIRM (a) 4points: + One point is earned for drawing a correctly labeled graph of the corn market with Py and Oye The ‘market demand curve must be dovmward sloping and the market supply curve must be upward sloping, ‘+ Ono point is eared for showing a horizontal demand curve on the firm’s graph extondad from the ‘market equilirium price, Py + Ono point is eared for identifying the firm's profit-maximizing quantity, Q;, at marginal cost oqual to marginal revenue (MC=MR). * One point is earned for showing the firm's average total cost (ATO) curve and marginal cost (MC) passing through the minimum point of ATC and P = ATC = MC at Oy ‘Note: All quantities and prices should be labeled on the axes and connected to the intersection points by dashed lines () 2points * One point is eamed for showing a rightward shift of the market demand curve and a higher price sand quantity, P” and Q. + One point is earned for completely shading the area representing the profit for a representative com farmer ()1 point + One point is earned for stating that the market quantity wil inctease and the market's price will decrease in the long run, an for explaining that new com farmers will enter the market, which will {ncreaze the market aupply curve,AP® MICROECONOMICS 2017 SCORING GUIDELINES Question 1 (continued) (@)1 point ‘= One point is earned for stating thatthe price of soybeans in the next planting season will increase, nd for explaining thatthe supply of soybeans will decrease because the higher price of ccm fencourages farmers Lo substitute com for soybeans in production, PRICE Supply (6) 2 points: ‘© One potnt is earned for showing a correctly labeled graph of the corn market, with the price celling, Pg, below the oquiibtium price of com, © One point is earned for showing the quantity purchased by consumers in the corn market labeled ‘a8 Gp whero Pe intersects the supply curv.