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 of rate of return? The other two dairies have a cost construction that generates $22 for every $200 invested. What is their percentage rate of return? assuming that normal rate of profit in the economy is 10 percent, will there be entry or exit? 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? If firms can copy others technology, what will be the rate of return eventually earned by all firms?

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% Please Rate

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