Question

(8 marks) 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. 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. (6 marks) 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. (2 marks)

Answer 1

Page No. Tolle Given that the price of fresh pork is $50. Owing the spread of COVID-19 price reduces to $30.6 cz of reducing the demand. Ket people toy x amount of pork before CAVTO - 19 speed s y - - g! xq 16.) we have given the average cost of a typical butcher of fresh pork is $40. In short run, a typical butcher should not shut down until his loss is not more than or equal to it's fixed cost. i.e, $25.