Suppose the market for fresh pork is a competitive market. Initially, it is operating at its long-run competitive equilibrium at a market price of $50. Owing to the spread of COVID-19, many people turn to buying frozen meat once a week rather than fresh pork every day. As a result, the market price of fresh pork reduces to $30. a. With the aid of a pair of market-and-firm diagrams, illustrate how this would affect the equilibrium price and quantity in the fresh pork market and the output of a typical butcher of fresh pork in the short-run. b. Suppose, for the situation in (a), the average cost of a typical butcher of fresh pork is $40, which includes $15 on buying meat from suppliers, $12 on paying rent, $8 on paying hourly wages on staff, and $5 on other costs. Explain whether a typical butcher should shut down in the short run.
Suppose the market for fresh pork is a competitive market. Initially, it is operating
at its long-run competitive equilibrium at a market price of $50.
Owing to the spread of COVID-19, many people turn to buying frozen meat once
a week rather than fresh pork every day. As a result, the market price of fresh pork
reduces to $30.
a. With the aid of a pair of market-and-firm diagrams, illustrate how this
would affect the
the output of a typical butcher of fresh pork in the short-run.
b. Suppose, for the situation in (a), the average cost of a typical butcher of
fresh pork is $40, which includes $15 on buying meat from suppliers, $12
on paying rent, $8 on paying hourly wages on staff, and $5 on other costs.
Explain whether a typical butcher should shut down in the short run.
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