Q1. Using the demand and supply model, explain and illustrate graphically, why writer ‘Ashleigh Bagshaw’ is suggesting that, ‘drop in Avocado’s prices is good news for some and lousy for other’. Hint: Make sure you discuss the equilibrating process, and clearly outline the assumptions in discussing the factors causing change in price and quantity.
Q2 (a). Assume avocados are sold in a perfectly competitive market and firms are making zero economic profit. Explain and illustrate graphically, the effect of decrease in market price on the short run position of a single firm selling avocados. (Hint: Make sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve and average total cost curve and also explain the profit maximising position of a firm)
Q2 (b). Based on the short run position identified in Q2 (a) explain and illustrate graphically effect of entry/exit on the long run position of the firm. (Hint: your answer should include graphs for both market as well as individual firm.)
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