Answered

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Consider a competitive market for a consumer product. Suppose this product goes out of fashion with consumers. How will this sudden drop in popularity affect the profit of an individual firm in this market in the long run?
A The profnt of an individual firm increases from a smaller positive value to a larger positive value in the long run.
B. The profht of an individual firm increases from zero to a positive value in the long run.
C. The profit of an individual firm decreases from zero, and the firm will incur a loss in the long run.
D. The profit of an individual firm stays at zero in the long run.

Sagot :

Answer:

The profit of an individual firm stays at zero in the long run.

Parrain

If a product goes out of fashion in a competitive market, the result would be that D. The profit of an individual firm stays at zero in the long run.

A competitive market is characterized by:

  • No barriers to entry which means sellers can come in and leave at will
  • Prices are the same for all sellers

If a product went out of fashion, companies would start making losses and less people would be buying the product. This would lead to some suppliers leaving the market till only a few are left.

This will lead to the price rising. If profits become more than zero, companies will come back into the market to make that profit. The increased supply would reduce the price again. The profit will then go to zero. This will keep happening thereby leaving the profit at zero in the long run.

We can therefore conclude that when a product goes out of fashion, profits will be zero for an individual firm in the long run.

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