Firms in Competitive Markets

The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently making economic losses.

Which of the following statements is true about the price of fertilizer?Check all that apply.

The price of fertilizer must be greater than average total cost.

The price of fertilizer must be greater than marginal cost.

The price of fertilizer must be greater than average variable cost.

The following graphs show the cost curves faced by a typical firm, the demand for fertilizer, and possible price and supply curves.

Firm

Price and Costs

Quantity

MC

ATC

AVC

P

2

P

1

Market

Price

Quantity

Demand

S

2

S

1

P

2

P

1

If firms in the market are producing output but are currently making economic losses, illustrates the present situation for the typical firm in the market, and indicates the corresponding supply curve.

Assuming there is no change in either demand or the firm's cost curves, which of the following statements is true about what will happen in the long run?Check all that apply.

The price of fertilizer will increase.

The total quantity supplied to the market will increase.

Average total cost will decrease.

The quantity supplied by each firm will decrease.

Marginal cost will increase.