Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations
A)must be operating in long-run equilibrium.
B)will leave this market in the long run because no economic profits are being earned.
C)will continue operating in this market only if the market price rises.
D)may be operating in either short-run or long-run equilibrium.

Question

Quizplus · Accepted Answer

Breaking even can occur in both the short-run and long-run equilibrium in a purely competitive market. In the short run, firms may adjust to break-even situations by changing output levels, while in the long run, the entry and exit of firms ensure that only those making normal profits (breaking even) remain. This does not necessarily indicate the market's long-run equilibrium status nor does it imply the firm will leave the market or needs a price increase to continue operating.

Karlee's Kreations Sells Handbags in a Purely Competitive Market