Consider the following about the market for flour -products are very similar, no

Question

Consider the following about the market for flour

-products are very similar, no noticeable difference

-many different producers of all purpose flour

-price is stable and is very close to best estimate of cost per unit

-very few barriers to entry

-no inputs are in short supply

a. should you invest in a flour company? why, why not.

b. suppose world population continues to grow and in the future most farmland used scarce input, scaling up involves paying additional costs to but land that is currently in use. Does it make sense to invest in flour now? why, why not.

c. after farmland becomes scarce, you read an article by an economist arguing that there are zero long run economic profits and also read an article in a farmers magazine about flour farmers getting rick. Can both be accurate?

Explanation / Answer

A) It does not seem to be a profitable idea to invest in a flour company as the prices are close to costs, making profits very low along with high competition.

B) No, it is definitely a bad idea to invest in a flour company now because the input costs have shot up and this will result in lower or even negative profits.

C) Yes, as increasing prices may be a result of increasing input costs, and profits can still be zero as the new increased prices equal new increased costs.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.