Eight mark – Andreas Savva 6A
According to the figure, there had been a dramatic fall in the prices of coffee with its price being around
130 cents per pound. This decrease in prices will result in losses. Since the price has fallen, it will fall
beyond the point where the firm is making more than its costs and the coffee farmer will face losses. If
these losses continue or if the price falls even further, the coffee farmer will be forced to leave the
market as he can no longer afford to pay his costs. This can be seen in the graph, as AR has fallen below
AC and is therefore making a loss. However, this may not be the case as it depends on whether this is
happening due to the state of the economy perhaps. The losses the firm is experiencing could be due to
a recession or slow rates of growth. When the economy is in a better state, there could be an increase in
prices and the AR could move above the AR point.
According to the figure, there had been a dramatic fall in the prices of coffee with its price being around
130 cents per pound. This decrease in prices will result in losses. Since the price has fallen, it will fall
beyond the point where the firm is making more than its costs and the coffee farmer will face losses. If
these losses continue or if the price falls even further, the coffee farmer will be forced to leave the
market as he can no longer afford to pay his costs. This can be seen in the graph, as AR has fallen below
AC and is therefore making a loss. However, this may not be the case as it depends on whether this is
happening due to the state of the economy perhaps. The losses the firm is experiencing could be due to
a recession or slow rates of growth. When the economy is in a better state, there could be an increase in
prices and the AR could move above the AR point.
