Author Question: The U-pick berry market is perfectly competitive. Suppose that all U-pick blueberry farms have the ... (Read 35 times)

silviawilliams41

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The U-pick berry market is perfectly competitive. Suppose that all U-pick blueberry farms have the same cost curves and all are making an economic profit. What happens as time passes? What is the long-run equilibrium outcome?
 
  What will be an ideal response?

Question 2

In the long run, monopolistically competitive firms make zero economic profits because of government regulations.
 
  Indicate whether the statement is true or false



Amiracle

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Answer to Question 1

The presence of economic profit attracts new firms into the U-pick blueberry market. As the new firms, that is, new farmers enter the market, the supply of U-pick blueberries increases. The increase in the supply drives the price lower and decreases the economic profits of the existing farmers. New farmers continue to enter the market as long as there is the possibility of making an economic profit. Eventually enough new firms enter so that the price is driven so low that the economic profit is eliminated. All the firms earn zero economic profit, which keeps them in business but provides no incentive for new firms to enter the market. At this point, the long-run equilibrium has been reached.

Answer to Question 2

FALSE



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