Constance manages a lumber mill in a perfectly competitive market. If the market price per piece is $5 and Constance's average total cost is $4, what will happen in the lumber industry in the long run?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if a firm like Constance's lumber mill is making a profit (since the market price of $5 is above the average total cost of $4), this signals new firms to enter the market. As new firms enter, the supply in the market increases, leading to a decrease in the market price until economic profits are zero.

Constance Manages a Lumber Mill in a Perfectly Competitive Market