A busy country store is the only producer and distributor of maple sausages in New Hampshire. It calculates that if it sets MR = MC, it will sell 2,000 sausages at a price of $10 and make a total economic profit of $6,000. Instead, the store decides to charge a price of $8. We can infer that the store
A) is lowering the price so that it can earn more than $6,000 total profit
B) is operating in a contestable market so it is pricing the sausages to keep out competition
C) will now sell fewer sausages according to the law of demand
D) is now operating at a loss of $1 per sausage
E) hopes that its demand is inelastic so that total revenue will increase

Question

Quizplus · Accepted Answer

The store is likely lowering the price to deter potential competitors from entering the market, which is a characteristic of a contestable market.

A Busy Country Store Is the Only Producer and Distributor