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The market for fertilizer is perfectly competitive. Firms
Chapter , Problem 9(choose chapter or problem)
The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.
a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?
b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market.
c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.
Questions & Answers
QUESTION:
The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.
a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?
b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market.
c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.
ANSWER:Step 1 of 5
Since the market is perfectly competitive, the price of the product is set by the industry. Under
perfect competition
