Reusable grocery bags are manufactured by a constant-cost competitive industry.
ID: 1098583 • Letter: R
Question
Reusable grocery bags are manufactured by a constant-cost competitive industry. The demand and long-run supply for these bags and the cost curves of a typical manufacturer are shown in the two figures below. The long-run equilibrium price p0 =$.62, industry output Q0, and the output of a typical firm q0 also are shown.
Suppose a superior, cost-saving fabric for manufacturing these bags becomes available. By switching to this fabric immediately, manufacturers can reduce their costs by $.20 per bag. Show the effects of this reduction in costs on p, Q and q in the short run and in the long run.
Explanation / Answer
https://www.google.co.in/search?q=long+run+average+cost+curve+decreases&espv=210&es_sm=122&source=lnms&tbm=isch&sa=X&ei=SBMzU9j-J8SUrAf8uYGgDg&ved=0CAgQ_AUoAQ&biw=1366&bih=667#facrc=_&imgdii=_&imgrc=YwdKHSYt2hXUIM%253A%3BG10Bmaojk6giTM%3Bhttp%253A%252F%252Ftutor2u.net%252Feconomics%252Frevision-notes%252Fa2micro-economiesofscale1.jpg%3Bhttp%253A%252F%252Ftutor2u.net%252Feconomics%252Frevision-notes%252Fa2-micro-economies-diseconomies-of-scale.html%3B717%3B386
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