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

Balin's current economic profits are only in the short run because in the long run, new firms will enter the market, driving down the market price and reducing Balin's economic profits to zero. Therefore, Balin's profits will not discourage new firms from entering, nor will it increase its market price.

Balin's Burger Barn Operates in a Perfectly Competitive Market