Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which of the following is most likely to occur?
A) Beef producers will now incur economic losses in both the short run and the long run.
B) Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning a zero economic profit.
C) Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning an economic profit.
D) Beef producers will now earn economic profits in the short run, and there will be no additional adjustments in the long run.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if demand for a product decreases (consumers switch from beef to chicken), producers initially face economic losses due to reduced prices and demand. In the short run, these losses occur because firms cannot adjust their production immediately. Over time, some producers will exit the industry, reducing the supply of beef. This reduction in supply will eventually restore the market to a new equilibrium where the remaining producers can again earn a zero economic profit, as the market price adjusts to match the lower supply with the reduced demand. This process aligns with the characteristics of perfect competition, where in the long run, firms earn zero economic profit due to free entry and exit in the market.

Assume the Market for Beef Is Perfectly Competitive