Question

Suppose that Betty’s Beads is a typical firm operating in a perfectly competitive market. Currently Betty’s MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude thatA. Betty’s is in long-run equilibrium.B. potential new firms will be encouraged by Betty’s success to enter the market.C. some existing firms in this market will leave.D. potential new firms will be discouraged by Betty’s struggles and not enter the market.

Answer 1

Answer:

The correct answer is option B.

Explanation:

Betty's beads is a firm in a perfectly competitive market.

Currently the marginal cost of the firm is $12.

The marginal revenue is $15.

The average total cost is $10 and the average variable cost is $8.  

A perfectly competitive firm faces a horizontal line demand curve which also represents the marginal revenue. This implies that the price of the firm is $15.

The firm is earning a profit as the revenue earned by the firm is higher than costs incurred. This will attract other potential firms to join the market in the long run.