Explain the effect of decrease in market price

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Reference no: EM132994983

Problem (a). Assume avocados are sold in a perfectly competitive market and firms are making zero economic profit. Explain and illustrate graphically, the effect of decrease in market price on the short run position of a single firm selling avocados. (Hint: Make sure your graph includes the firm's demand curve, marginal revenue curve, marginal cost curve and average total cost curve and also explain the profit maximising position of a firm)

Problem (b). Based on the short run position identified in (a) explain and illustrate graphically effect of entry/exit on the long run position of the firm. (Hint: your answer should include graphs for both market as well as individual firm.)

Reference no: EM132994983

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