The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.How does the price of fertilizer compare to the average total cost, the averagevariable cost, and the marginal cost of producing fertilizer?Draw two graphs, side by side, illustrating the present situation for the typical firmand for the market.Assuming there is no change in either demand or the firms’ cost curves, explain whatwill 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.

Perfect competition: The market in which competition is at its greatest possible level.

Answered: The market for fertilizer is perfectly…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.6P

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The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.
1. How does the price of fertilizer compare to the average total cost, the average
  
  variable cost, and the marginal cost of producing fertilizer?
2. Draw two graphs, side by side, illustrating the present situation for the typical firm
  
  and for the market.
3. 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.

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