Rose growing is a perfectly competitive industry and all rose growers have the s

Question

Rose growing is a perfectly competitive industry and all rose growers have the same cost curves The market price of roses is $11 a bunch and each grower maximizes proft by producing 1,100 bunches a week The average total cost of producing roses is $22 a bunch. Minimum average variable cost is s20 a bunch, and the minimum average tocal cost is $14 a bunch in the short un, each grower is o> Answer wwith a postive number ofS a week Because firms inte ndustry are The number of rose growers wi some 'rms wa- the market in the long run O A. making an economic profit, exit and some frms will enter decrease or increase depending on the relative number of exiting and eneering firms O B. incurring an economic loss, exit, decrease O C. makng zero econome proft shut down and exit; decrease O D. incurring an economic loss, enter and some fms vwill exit increase or decrease depending on the elative number of entering and exiting fms OE. making an economic prolit,enter, increase Cick to select your answers 6 8

Explanation / Answer

Here we first find out the short run profit maximisation condition. That is,

Market price = $11/ Bunch

Quantity = 1,100/Bunches per week

ATC = $22/Bunch

AVC = $10/ Bunch

Here the market price ($11) lower than the Average total cost ($22). So the firm making loss of $11.

In the short run each grower making economic loss of $11 per week.

Part B

Because the firm in the industry are incurring an economic loss. some firms will enter and some firms will exit the market in the long run. The number of rose growers will increase or decrease depending on the relative number of entering and exiting firms

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