AP Micro FRQ: A loss for a blueberry grower

Long free-response question, 10 pointsAbout 25 minutes · 10 points

Blueberries are sold in a perfectly competitive, constant-cost industry. The market is in long-run equilibrium at a price of 4 dollars per pint, and Hilltop Farm is a typical grower. Then consumers' tastes shift away from blueberries, market demand decreases, and the market price falls to 3 dollars per pint. At that price Hilltop Farm maximizes profit by producing 800 pints a week, where its average total cost is 4.50 dollars and its average variable cost is 2.75 dollars.

(A) Draw correctly labeled side-by-side graphs of the blueberry market and of Hilltop Farm in long-run equilibrium before the change in demand. Label the market price P₁, the market quantity QM, and the farm's quantity QF. 3 points

(B) On your graphs in part A, show the effect of the decrease in market demand. Label the new market price P₂ and the farm's new quantity Q₂, and completely shade the area of the farm's economic profit or loss. 2 points

(C) (i) Calculate Hilltop Farm's weekly economic profit or loss at the new price. Show your work. (ii) Calculate the loss Hilltop Farm would have if it shut down in the short run. 2 points

(D) Should Hilltop Farm shut down in the short run? Explain using numbers. 1 point

(E) (i) What happens to the number of blueberry growers in the long run? (ii) Explain what happens to the market price of blueberries in the long run. 2 points