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Assume the potato industry is a perfectly competitive market and all firms in the market are earning a zero-economic profit, a scientific study comes out that says eating one potato a week will decrease your risk of heart disease. (4 pts.) Will this cause the market price of potatoes to increase or decrease? In the short run, will this cause the profit for the firms currently in the market to increase or decrease? In the long run, will the profit firms earn be a positive, negative, or negative economic profit? Briefly explain your answer.

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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Related questions

Poinsettia growing is a perfectly competitive industry and all poinsettia growers have the same cost curves. The market price of poinsettias is $5 a pot and each grower maximizes profit by producing 2,600 pots a week. The average total cost of producing Poinsettias is $20 a pot. The minimum average variable cost is $4 a pot and the minimum average total cost is $12 a pot. In the short-run, does each grower incur an economic loss or make a profit? How much?

Answer with a positive number.

Because firms in the industry are ______, some firms will ______ the market in the long-run. The number of poinsettia growers will ______.

A. making an economic profit; enter; increase

B. incurring an economic loss; exit; decrease

C .incurring an economic loss; enter and some firms will exit; increase or decrease depending on the relative number of entering and exiting firms

D. making an economic profit; exit and some firms will enter; decrease or increase depending on the relative number of exiting and entering firms

E.making zero economic profit; shut down and exit; decrease

1.) The minimum feasible long-run average cost for firms in a perfectly competitive industry is $58 per unit. IF every firm in the industry currently is producing an output consistent with a long-run equilibrium, calculate the marginal cost incurred by each firm and the market price.

Marginal cost is $___ and market price is $___ .

How I calculate this?

2.) A perfectly competitive increasing cost industry is in long-run equilibrium. Due to a change in tastes and preferences, there is a decrease in demand. Which of the following best describes the effect on the industry?

The price will

A.) decrease, firms will produce more, profits will decrease, and more firms will enter until profit returns to zero.

B.) decrease, firms will produce less, profits will increase, and more firms will enter until profit returns to zero.

C.) decrease, firms will produce less, profits will be below zero, and firms will exit until profit returns to zero.

D.) increase, firms will produce more, profits will increase, and more firms will enter until profit returns to zero.

In a competitive market with identical firms:

a. free entry and exit into the market require that firms earn zero economic profit in the long-run even though they may be able to earn positive economic profit in the short-run. 

b. firms can earn positive economic profit in the long-run if the long-run market supply curve is upward-sloping. 

c. an increase in demand in the short-run will result in a new price above the minimum average total cost, allowing firms to earn a positive economic profit in both the short-run and long-run. 

d. firms cannot earn positive economic profit in either the short-run or long-run. 

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