Question

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 $0.20. Now suppose that the price of sugar falls, decreasing the marginal and average total costs of producing candy canes by $0.15. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:

negative economic profits.
positive economic profit.
The answer is impossible to determine based on the information given.
zero economic profit.

Answer 1

positive economic profit.

Step-by-step explanation:

The answer for the given question is "positive economic profit" because the cost of production of the candies have been reduced, but the price of the candy remains the same.

Hence, the typical producer will earn a profit of $ 0.05 on each candy thus, getting added to his profit till the time the equilibrium is maintained in the market.