Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $12.50 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 bottle will fall.
D)average total costs will fall.

Question

Quizplus · Accepted Answer

At the profit-maximizing output level, Roger is earning zero economic profit. This means that he is covering all of his costs including a normal profit. If more firms enter the market, the supply of vitamins would increase, driving down the price. This would make it difficult for Roger to cover his costs, and some firms would exit from the market. This process would continue until the price settles at the minimum average total cost, which is $12.50 per bottle. Therefore, the answer is B.

Roger Owns a Small Health Store That Sells Vitamins in a Perfectly