Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:

Question

Quizplus · Accepted Answer

The increase in costs will cause the marginal cost curve to shift upwards, resulting in a new short-run equilibrium price above the previous $0.10 price. This new price will be higher than the average total cost, causing economic losses for candy cane producers in the short run. Therefore, a typical producer of candy canes will be making negative economic profits.

Suppose That the Market for Candy Canes Operates Under Conditions