7. Penny's Farm grows peaches and operates in a constant-cost, perfectly competitive peach industry. Penny's Farm is currently in long-run equilibrium.
a. Draw correctly labeled side-by-side graphs for the peach market and Penny's
Farm, and show each of the following:
i. Market output and price, labeled as Qm and PM, respectively
ii. Penny's Farm output and price, labeled as Q and Ps, respectively
b. Assume the demand for peaches increases. On your graphs in part (a) show what
will happen to each of the following in the short run.
i. Market output and price, labeled as Q. and P , respectively
ii. The area of profit or loss earned by Penny's Farm, shaded completely.
c. Relative to your answer in part (b), state what will happen to the market
equilibrium price and quantity of peaches in the long run. Explain.