Asked by Juanita Soriano on Jun 19, 2024
Verified
Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from chicken to beef, which of the following is most likely to occur?
A) Beef producers will now incur economic profits in both the short run and the long run.
B) Beef producers will incur economic profits in the short run. Some producers will enter the industry until all firms in the industry are earning a zero economic profit.
C) Beef producers will incur economic profits in the short run. Some producers will enter the industry as long as all firms in the industry are earning an economic profit.
D) Beef producers will now earn economic losses in the short run, and there will be no additional adjustments in the long run.
Economic Profit
The difference between total revenue and total costs, including both explicit and implicit costs, representing the surplus revenue after all costs have been accounted for.
Zero Economic Profit
Occurs when a firm's total revenue is equal to its total explicit and implicit costs, indicating no abnormal profit.
Perfectly Competitive
A market structure characterized by a large number of small firms, homogenous products, and free entry and exit, leading to the optimal distribution of resources.
- Describe the impact of demand and supply changes in perfectly competitive markets.
- Comprehend the concept of economic profit and loss and its implications on market entry and exit.
Verified Answer
AH
Ashlee HilmanJun 25, 2024
Final Answer :
B
Explanation :
In a perfectly competitive market, an increase in demand (such as a switch from chicken to beef) leads to higher prices and economic profits in the short run. Over time, new producers enter the market, increasing supply until the economic profit is eliminated, and firms again earn a zero economic profit in the long run.
Learning Objectives
- Describe the impact of demand and supply changes in perfectly competitive markets.
- Comprehend the concept of economic profit and loss and its implications on market entry and exit.