Balin's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that
A)Balin's profits will discourage new firms from entering.
B)Balin's will increase its market price over the coming months.
C)Balin's is operating in the short run, but not the long run.
D)Balin's is operating in the long run.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, economic profits attract new firms, leading to increased competition and a decrease in prices until economic profits are zero. Since Balin's is earning economic profits, it indicates that the market has not yet reached long-run equilibrium, where all firms earn zero economic profit. This suggests Balin's is operating in the short run.

Balin's Burger Barn Operates in a Perfectly Competitive Market