Question: Ralph opened a small shop selling bags of trail mix. The price of the mix is $5, and the market for trail mix is very competitive. Ralph's cost curves are shown in the figure below.
a. At what quantity will Ralph produce? Why?
b. When the price is $5, shade the area of profit or loss in the graph provided and calculate Ralph's profit or loss (round up).
c. If all other sellers of trail mix have the same marginal and average costs as Ralph, should he expect more or fewer competitors in the future? In the long run, will the price of trail mix rise or fall? How do you know? What will the price of trail mix be in the long run?