Asked by Morgan Beasley on Jun 29, 2024
Verified
Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that
A) Betty's is in long-run equilibrium.
B) Betty's experience will encourage new firms to enter the market.
C) Betty's experience will encourage some existing firms in this market to leave.
D) Betty's experience will discourage firms from entering the market.
Market Entry
The process by which a new competitor enters an existing market, often involving overcoming barriers to entry.
AVC
Average Variable Cost, which is the total variable costs of production divided by the quantity of output produced.
- Acquire knowledge on the role of economic and normal profits in influencing the decision-making mechanisms of companies within purely competitive environments.
- Analyze how cost structures, including MR=MC (Marginal Cost equals Marginal Revenue), ATC (Average Total Cost), and AVC (Average Variable Cost), influence a firm's profit levels and the competitive dynamics of the market.
Verified Answer
ZK
Zybrea KnightJul 06, 2024
Final Answer :
B
Explanation :
Betty's Beads is making a profit since its marginal revenue (MR) of $15 is greater than its average total cost (ATC) of $10. In a perfectly competitive market, profits attract new firms, leading to entry until profits are driven to zero in the long run.
Learning Objectives
- Acquire knowledge on the role of economic and normal profits in influencing the decision-making mechanisms of companies within purely competitive environments.
- Analyze how cost structures, including MR=MC (Marginal Cost equals Marginal Revenue), ATC (Average Total Cost), and AVC (Average Variable Cost), influence a firm's profit levels and the competitive dynamics of the market.