There are 300 purely competitive farms in the local dairy market. Of the 300 dai

Question

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 $24 for every $300 invested. What is their percentage rate of return? The percentage rate of return for the 298 firms is percent. The other two dairies have a cost structure that generates profits of $22 for every $200 invested. What is their percentage rate of return? The percentage rate of return for the 2 firms is percent. Assuming that the normal rate of profit in the economy is 10 percent, will there be entry or exit? There will be . Will the change in the number of firms affect the two that earn $22 for every $200 invested? What will be the rate of return earned by most firms in the industry in long-run equilibrium? In long-run equilibrium, most firms (the ones that remain from the original 298) will earn the normal % rate of return. If firms can copy each other

Explanation / Answer

1. percentage of rate of return(298 dairies) = 24/300 x 100 = 8% 2. percentage of rate of return(2 dairies) = 22/200 x 100 = 11% 3. There will be EXIT as 298 dairies are earning lower than current market 10%(loss) 4. No, it wont affect the two firms.. 5. 10 % 6. 11%

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