In panel (b) of Figure 12.9 on page 435, Sacha Gillette reduces her output from 40,000 to 25,000 dozen eggs when the price falls to $1.75. At this price and this output level, she is operating at a loss. Why doesn’t she just continue charging the original $2.00 and continue producing 40,000 dozen eggs?

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1. Demand for eggs decines, causing the market price to fall... 2....and causing a representative fim in the industry to suffer a loss. Price and cost Price MC (dollars per dozen) ATC (dollars per dozen) $2.00 $2.00 D, - MR, 1.75 1.75 D= MR: Farmer Gilette's loss when the price of eggs is $1.75 per dozen. D, 37.000,000 40.000.000 Quantity (dozens of eggs) 25.000 40,000 Quantity (dozens of eggs) (a) Decrease in the demand for cage-free eggs (b) Famer Gillette's loss 3. Losses cause some firms to exit the industry, which causes the market supply curve to shit to the left.. 4.... and raises the market price, allowing the representative finn to break even. Price Price and cost (dollars per dozen) MC ATC (dollars per dazen) $2.00 62.00 D= MR 1.75 D, 35.000,000 37,000,000 40,000,000 Quantity (dozens of eggs) 40,000 Quantity (dozens of eggs) (c) Firms exit the market for cage-free eggs (d) Farmer Gillette breaks even