Question

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.

Answer 1

Answer:

A) In the Below Graph, the underlying harmony is at point C where the Interest bend P1 meets the Flexibly bend prompting a balance amount of 30 units (expected) and the balance cost of $ 50. Presently due to covid-19 pestilence, the interest for new meat has been diminished because of increment in utilization of solidified and cannedmeat.

This will prompt move of interest curve to the leftwards . The point B in the above outline speaks to that the interest bend shifts from P1 to P2 prompting change in the balance point from direct C toward point D .

This prompts decrease in equilibrium amount from 30 to 20 units and the balance cost from $ 50 to $30. In this way we can presume that when the interest of the item increments and the gracefully continues as before, this prompts move of balance point to the leftwards prompting decline in the equilibrium cost and balance amount of the good.

B)The shutdown point for a producer in short run is where the value Falls underneath the normal variable expense of the firm. In the above model the normal variable expense is $ 15 while the cost has been diminished to $ 30 which is more than the normal variable expense. In this way the maker will decide not to shutdown his firm in short run.