Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch to beef from chicken, which of the following is most likely to occur?
A) Beef producers will now incur economic profits in both the short run and the long run.
B) Beef producers will incur economic profits in the short run. Some producers will enter the industry until all firms in the industry are earning a zero economic profit.
C) Beef producers will incur economic profits in the short run. Some producers will enter the industry as long as all firms in the industry are earning an economic profit.
D) Beef producers will now earn economic losses in the short run, and there will be no additional adjustments in the long run.

Question

Quizplus · Accepted Answer

If consumers switch to beef from chicken, the demand for beef will increase, leading to an increase in the market price. In the short run, beef producers will incur economic profits as the increase in price will generate more revenue than the increase in costs. However, in the long run, some new producers will enter the industry attracted by the new economic profits. This will increase the supply of beef causing the market price to fall until all firms in the industry are once again earning zero economic profit. Therefore, in the long run, all beef producers will earn a zero economic profit, but in the short run, some producers will earn economic profits. Therefore, the most likely scenario is B.

Assume the Market for Beef Is Perfectly Competitive