Suppose that the market for candy canes operates under conditions of perfect competition,that it is initially in long-run equilibrium,that the price of each candy cane is $0.10,and that the market demand curve is downward sloping.The price of sugar rises,increasing the marginal and average total cost of producing candy canes by $0.05;there are no other changes in production costs.In the long run,we will observe:

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The increase in production costs will lead to a decrease in profits for candy cane producers. As a result, firms will begin to exit the industry in search of more profitable ventures. This will cause a decrease in supply, leading to an increase in price. Eventually, the market will reach a new long-run equilibrium at a higher price, reflecting the higher production costs.

Suppose That the Market for Candy Canes Operates Under Conditions