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.Once all of the adjustments to long-run equilibrium have been made,the price of candy canes will equal:

Question

Quizplus · Accepted Answer

The increase in production costs will shift the supply curve to the left, causing the equilibrium price to increase. As a result, the price of candy canes will increase by the same amount as the increase in production costs, which is $0.05. Therefore, the new equilibrium price will be $0.10 + $0.05 = $0.15. Thus, the correct answer is choice C.

Suppose That the Market for Candy Canes Operates Under Conditions