Asked by Rahaf Aldabain on May 16, 2024
Verified
Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $25, MC = $23, ATC = $20, and AVC = $16. 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.
Perfectly Competitive
A market structure characterized by a large number of small firms, homogenous products, and free entry and exit, leading to optimal distribution of resources.
MR = MC
An economic principle where the marginal revenue (MR) equals the marginal cost (MC), often used as a condition for profit maximization.
ATC = AVC
Indicates that the Average Total Cost equals the Average Variable Cost, a condition found at the minimum point of the Average Total Cost curve in economic analysis.
- Determine the key factors that motivate new companies to enter industries characterized by perfect competition.
- Evaluate the financial composition and profit outcomes (economic earnings, financial shortcomings, and equilibrium profits) among companies within pure competition markets.
Verified Answer
QB
Quori BlakeneyMay 21, 2024
Final Answer :
B
Explanation :
Betty's Beads is making a profit since the price (MR = $25) is greater than ATC ($20). In a perfectly competitive market, profits attract new firms, leading to entry until profits are eliminated and the market reaches long-run equilibrium.
Learning Objectives
- Determine the key factors that motivate new companies to enter industries characterized by perfect competition.
- Evaluate the financial composition and profit outcomes (economic earnings, financial shortcomings, and equilibrium profits) among companies within pure competition markets.