Posted by Mariah on .
How is income distribution affected in monopolies?
The market for fertilizer is perfectly competitive. Firms in the market are producing output, but they are currently making economic losses.
a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?
I would think that average total cost and the average variable cost would be greater than the price of fertilizer. The marginal cost would be equal to the price of fertilizer. Is this correct?
c. Assuming there is no change in demand or the firms' cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.
Is this a monopoly or perfectly competitive firm? I'm confused...
In general, income from monopolies is concentrated in a single or a few individuals.
a) you are correct.
c) in the long run, firms will drop out, causing a decrease in supply. Price will rise. MC=P, so MC rises. Avg cost will probably rise. (But you could describe a situation where total average cost falls.)