How does the market price change and what happens to profits

Reference no: EM13239835

A firm in a perfectly competitive industry is making losses in the short run.

(i) Sketch a ‘typical' firm's Average Cost and Marginal Cost curves and in the diagram show a possible price at which the firm would produce in the short run, but make losses. [Hint: how does the price compare with the firm's average variable cost?]

(ii) Now explain what will happen in the industry as a whole in response to the losses that firms are experiencing. How does the market price change and what happens to profits?

Reference no: EM13239835

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