Assume the market for coffee mugs is perfectly competitive. Firms in the market are producing output, but are currently making economic losses. a. How does the price of coffee mugs compare to the average total cost, the average variable cost, and the marginal cost of producing coffee mugs? b. Draw two graphs, side by side, illustrating the present situation for the typical firm and in the market. c. Assuming there is no change in either market demand or the firms’ cost curves, explain what will happen in the long run to the price of coffee mugs, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.
Assume the market for coffee mugs is perfectly competitive. Firms in the market are producing output, but are currently making economic losses. a. How does the price of coffee mugs compare to the average total cost, the average variable cost, and the marginal cost of producing coffee mugs? b. Draw two graphs, side by side, illustrating the present situation for the typical firm and in the market. c. Assuming there is no change in either market demand or the firms’ cost curves, explain what will happen in the long run to the price of coffee mugs, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
1. Assume the market for coffee mugs is
market are producing output, but are currently making economic losses.
a. How does the
variable cost, and the marginal cost of producing coffee mugs?
b. Draw two graphs, side by side, illustrating the present situation for the typical firm and
in the market.
c. Assuming there is no change in either market demand or the firms’ cost
explain what will happen in the long run to the price of coffee mugs, marginal cost,
average total cost, the quantity supplied by each firm, and the total quantity supplied to
the market.
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