The cranberry market is perfectly competitive.Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries.As time passes,the price of cranberries ________ and the initial firms' economic ________.
A) falls; profit will be eliminated
B) rises still higher; loss will be eliminated
C) rises still higher; profit will not change
D) falls; loss will be increased
E) falls; profit will not change

Question

Quizplus · Accepted Answer

In a perfectly competitive market, an increase in demand leads to a temporary rise in price and profits, attracting new firms. Over time, the entry of these new firms increases supply, which reduces the price and eliminates the initial economic profits, restoring normal profit levels.

The Cranberry Market Is Perfectly Competitive