The graphs above are for the apple market These are supply a

The graphs above are for the apple market. These are supply and demand and cost curves for a typical farmer in the market.

Using the graphs. Which of the following statements is ?true?

A.

The current market price is? $3 but the firm will be able to increase the price in the future.

B.

The current market price is? $3 but the price will increase in the future as the market demand increases.

C.

The current market price is? $3 but the price will fall in the long run as a result of a decrease in demand.

D.

Price and cost (dollars per pound) Price Supply of per pound) MC ATC Market 3 Market Price 2 Demand for apples 10 30 40 50 10 20 30 40 50 (thousands of pounds) (thousands of pounds)

Solution

option D is correct.

The current market price is? $3 but the price will fall in the long run as new firms enter the market.

When P = $ 3 , it is greater than the ATC at the quantity where P = MC. More firms will enter the market to make profits, supply would shift to the right (increase).