Willie's Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run
A)more firms will enter the market.
B)some firms will exit from the market.
C)the equilibrium price per unit will rise.
D)average total costs will fall.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if the price is above the average total cost, firms in the long run will earn profits, which will attract new firms to enter the market. As a result, the market supply will increase, and the price will be pushed downwards. Therefore, more firms will enter the market.

Willie's Wading Adventures Sells Hip Waders for Fishing and Duck