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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

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

a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?

b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market.

c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.

Subpart (a):

To determine

Long run impact of price, marginal revenue, average total cost and quantity supplied by the firm and quantity supplied to the market.

Explanation

Suppose the perfectly competitive market continues to produce output price level that exceeds the average variable cost but if they incur loss...

Subpart (b):

To determine

Long run impact of price, marginal revenue, average total cost and quantity supplied by the firm and quantity supplied to the market.

Subpart (c):

To determine

Long run impact of price, marginal revenue, average total cost and quantity supplied by the firm and quantity supplied to the market.

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