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Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output but they are experiencing economic losses. Check in your
Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output but they are experiencing economic losses. Check in your textbook when this happens in term of covering some costs and not being able to cover some other costs. a. b. [5 marks] Explain how ATC, AVC and MC are related (Note: the relationship of these cost curves is same whether there is loss or prot). [5 marks] Explain how the Price of fertilizer compares to the ATC, AVC and MC of producing fertilizer. Carefully read the question and make sure that you answer all relevant details. Won have to compare price with ATC, AVC and MC for a rm that is described in the question (one that is making losses but still producing)] [7 marks] Draw two graphs side by side illustrating the present situation (the short run equilibrium) for the single firm and the entire market. Clearly label the diagrams and explain what you draw for both diagrams. Along with the diagram, rst theoretically explain the situation when rms are operating despite making economic losses. [In this part, only show the short-run equilibrium for both the rm and the market] [8 marks] Assuming there is no change in demand curve or in cost curves, explain what should happen in the long run to the price of fertilizer, manginal cost, average total cost, the quantity supplied by each rm, and the total quantity supplied to the market. Redraw the set of diagrams you drew in part c) and show the long-run equilibrium for the rm and the market. Each change on the diagrams should be explained step by step to qualify for full marks
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