In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800,000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market,
A) earning an economic profit in the long run is extremely easy.
B) earning an economic profit in the long run is extremely difficult.
C) it is impossible to earn an economic profit in either the short run or the long run.
D) economic profits are only earned in the long run.

Question

Quizplus · Accepted Answer

The fact that Ethan Nicholas had to drop the price of his iShoot application in order to maintain sales indicates that the market for iPhone applications is competitive, and therefore earning an economic profit in the long run is extremely difficult. This is because competition limits a firm's ability to charge high prices and earn high profits, as other firms will enter the market and offer similar products at lower prices. It is still possible to earn an economic profit in the short run, but in the long run, firms will enter the market and drive down profits to zero.

In August 2008, Ethan Nicholas Developed the IShoot Application for the Apple