Suppose That the Market for Candy Canes Operates Under Conditions

question 82

Essay

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 cost of producing candy canes by $0.05; there are no other changes in production costs.Based on the information given, we can conclude that once all of the adjustments to long-run equilibrium have been made, the price of candy canes will equal:
A.$0.05.
B.$0.10.
C.$0.15.
D.The question is impossible to answer without knowing exactly how many firms entered and/or left the industry.

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Definitions:

Positive Economic Statement

An objective statement that can be tested or validated through data, as opposed to a normative statement which is subjective and opinion-based.

Normative Statement

A statement that expresses a value judgment or opinion, suggesting how things should be rather than stating factual evidence.

Moral Judgment

The process of determining the rightness or wrongness of actions, often based on ethical principles.

Opportunity Costs

The cost of missing out on the top alternative by deciding on another option.