Question

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, that the price of each candy cane is $0.10, and that the market demand curve is downward-sloping. 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. Once all of the adjustments to long-run equilibrium have been made, the price of candy canes will equal:

Answer 1

The answer is: $0.15

Step-by-step explanation:

In a perfectly competitive industry, the price of a good or service is always equal to the marginal revenue for the suppliers. In this case, the price for candy canes is $0.10.

If the price of candy canes' inputs increases by $0.05, then the new price of candy canes will be $0.15 ($0.10 + $0.05).