Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.)
-Refer to Scenario 16-3. Which of the following statements best describes the long run adjustment in this market?
A)One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase and he sustains positive profits in the long run.
B)One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase until he earns zero profit.
C)One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he incurs losses and exits the industry.
D)One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he earns zero profit.

Question

Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in Fairfield for the same customers. Peter's demand and cost values for sales per day are given in the table below. (Everyone who purchases Peter's ice cream buys a double scoop cone because it's so delicious.) 
-Refer to Scenario 16-3. Which of the following statements best describes the long run adjustment in this market?
A)One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase and he sustains positive profits in the long run. 
B)One or more ice cream shops in Fairfield closes, increasing the demand for Peter's ice cream. Peter's profits increase until he earns zero profit. 
C)One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he incurs losses and exits the industry. 
D)One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the demand for Peter's ice cream. Peter's profits decline until he earns zero profit.

Quizplus · Accepted Answer

In the long run, the entry of new ice cream shops in Fairfield will increase competition for Peter, reducing the demand for his unique ice cream flavors. This will lead to a decline in Peter's profits until he earns zero economic profit.

Scenario 16-3 Peter Operates an Ice Cream Shop in the Center of Center