Compensates orange farmers for all fixed costs

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Suppose that Florida adopts a new state policy in which the government compensates orange farmers for all fixed costs, but the policy does not affect their variable costs of producing oranges. The graphs below show the costs faced by individual orange farmers in Florida and the market conditions. The only effect of the new government policy is to lower the ATC for farmers from ATC to ATC’. All farmers are identical and the market demand is constant. Show how this new policy affects the market demand and supply of oranges in the short-run and show the short-run profits and output of individual farmers in a graph.

Reference no: EM131073997

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