Question

Long-run analyses of competitive markets predict that prices should fall to the minimum of long-run average costs. Briefly discuss the relevance of this prediction for the market for seasonal / festive products. In your answer, consider one or two of the key assumptions motivating the theory of long-run market equilibrium, and assess whether they apply to the case of seasonal / festive products. No graph is needed.

Answer 1

I believe the cost would fall to minimum of longrun costs. The reason is that seasonal festivals would led to diversion from longrun average cost in one season. But firms will come to know about seasonal demand soon. In longrun firms will adjust the plants to meet seasonal demand. Thus costs will fall to longrun average cost. This is particularly true if we assume saucer shaped cost curves or if we assume that there is some reserve capacity in manufacturing plants