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Economics

DB Unit 3 Economics

1. Prompt:Read“YOU’RE THE ECONOMIST: Recession Takes a Bite Out of Gator Profits” in Chapter 8. Assuming gator farming is perfectly competitive, explain the long-run competitive equilibrium condition for the typical gator farmer and the industry as a whole.

2. Read “YOU’RE THE ECONOMIST: The Standard Oil Monopoly” in Chapter 9. If Standard Oil was a natural monopoly, what would happen to the average cost of producing gasoline after the company was split up? Explain using an LRAC curve.

o Requirements: 250 words minimum for each question

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 Companies offering similar products in the same industry face intense competition. Notably, businesses try to charge more for the products; however, most experience a backlash from the clients since they opt to get services from another seller at a lower cost (Tucker, 2019). These competitive conditions are prevalent in agricultural practice, whereby farmers producing the same farm products face fierce competition. In most instances, these farmers opt to try another farming practice to reduce extreme competitive conditions. As illustrated in chapter eight, the case study reveals that cow farmers had to switch their agricultural practice to a more profiting venture of keeping alligators as farm animals (Tucker, 2019). Gator farming became the fastest growing business in Florida, which opened up new opportunities in diverse industries. For instance, the fashion industry utilized gator skin by making fashionable items like belts, purses, shoes, and restaurants sold the animals’ meat. Hence, assuming that gator farming is perfectly competitive, there would be no positive economic profits enabling the typical farmer to attract new clients under the long-run competitive equilibrium condition. Further, as Tucker (2019) explains, there would be no negative economic profits forcing the existing farmers in the industry to exit. With that in mind, farmers and the industry will achieve maximum efficiency since the profits will go down to zero. Farmers in the gator business will continue earning normal profit and charge clients the lowest for their products.  Overall, the long-run equilibrium state makes the company operate without adjusting in the output level or considering other operations aspects, such as transforming the factory size.

(550words)