3. Problems and Applications Q8 The market for fertilizer is perfectly competiti

Question

3. Problems and Applications Q8 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 equal to average variable cost. The price of fertilizer must be less than average total cost. The price of fertilizer must be less than marginal cost. The following graphs show the cost curves faced by a typical firm, the demand for fertilizer, and possible price and supply curves. Fim Market Demand TC AV Quantity Quantity If fims in the market are producing output but are currently making economic losses, in the market, and illustrates the present situation for the typical firm 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 quantity supplied by each firm will decrease. The total quantity supplied to the market will increase. Marginal cost will increase Average total cost will decrease

Explanation / Answer

b. Price must be less than ATC. Loss per unit = ATC - P.

If price is less than ATC or price curve lies below ATC, there are losses

P2, S2.

P2 is less than ATC while P1 is equal to ATC. P2 shows loss while P1 shows zero profits.

c.

Due to losses, many firms will exit the industry and hence, total output supply will decrease.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.