Answered: competitive market

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The following graph shows a firm’s marginal cost and average cost of production of raspberries.

a. The equilibrium price at this market is $2.5. At this price, is the firm earning economic profit or is it
incurring economic losses?
b. Is the firm operating in a competitive market based on the given information? Why?
c. Suppose the price of raspberries increases to $5. How would you answer a. and b. in this case?
d. If the market is indeed competitive, what will happen after the price increase in c.? What will be
the final price and the long-term profit of the firm?

E16
Marginal cost
P.
14
12
10
8.
Average cost
4.
$2.5
2.
100 120 100
20
40 60
Quantity (packs of raspberries)
orkot is $2.5. At this price, is the firm earning

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