Figure: The Market for Gas Stations (Figure: The Market for Gas Stations) Look at the figure The Market for Gas Stations.Assume that the market for gas stations is characterized by many firms, differentiated products, easy entry, and easy exit.The typical gas station will maximize profits at a quantity of:

Question

Figure: The Market for Gas Stations   (Figure: The Market for Gas Stations) Look at the figure The Market for Gas Stations.Assume that the market for gas stations is characterized by many firms, differentiated products, easy entry, and easy exit.The typical gas station will maximize profits at a quantity of:

Quizplus · Accepted Answer

In a market with easy entry and exit and differentiated products, firms will enter the market and exit the market until economic profits are driven to zero. At the point where economic profits are zero, the firm is producing at the efficient scale where MR=MC. This occurs at the quantity where the demand curve is tangent to the ATC curve, which is Q₂ in the figure. Therefore, the typical gas station will maximize profits at Q₂.

Figure: the Market for Gas Stations (Figure: the Market