The graph below shows the market demand and supply curves for pork along with th
ID: 1205546 • Letter: T
Question
The graph below shows the market demand and supply curves for pork along with the cost curves of a typical seller in a perfectly competitive market for this product. The minimum possible average cost of producing pork in the long run is $2.30 per pound. Use this graph to answer questions 29-31: At the current market equilibrium price of $2 per pound the firm will maximize profits or minimize losses by producing zero pounds of pork per month. 1000 pounds of port per month. 2000 pounds of pork per month. 2500 pounds of pork per month. At the current market equilibrium price of $2 the firm will, shut down immediately. continue operating at a loss in the short run. earn economic profits. stay in business in the long run. Based on the information in the graphs, in the long run firms will neither enter nor leave the pork industry. new firms will enter the industry. some existing firms will leave the industry. firms in the industry can cover their opportunity costs at the $2 market equilibrium price.Explanation / Answer
Answer 29 :
In this case, the price of $2 is above the minimum point of the AVC curve. Thus, the firm in order to minimize losses will not shut down and will keep on producing the output as the firm will be able to cover its variable cost though not able to cover the full fixed cost but a part of it. But if it shuts down it will have to bear losses equal to the entire fixed cost of the firm. So, it will produce at the point where P = MC or produce 2000 units ( Option C).
Answer 30 :
Option B. The reasoning for this is given in the above answer.
Answer 31 :
Option C.
In the long run, some firms will exit the industry as prices are below Average total Cost and thus, they will bear losses.
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