The market for fertilizer is perfectly competitive. Firms in
the market are producing output, but are currently making 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 the market.
(c) Assuming there is no change in demand or the firms’ cost
curves, explain what will happen in the long run price of fertilizer, marginal
cost, average total cost, and the total quantity supplied to the market.
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