If the Ice Cream Industry Is a Competitive Price-Taker Market

question 14

Multiple Choice

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

• A) Firms will exit the ice cream industry in the long run since they are earning zero economic profit.
• B) The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market.
• C) A shortage of ice cream will develop.
• D) The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry.

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Definitions:

Organic Produce

Fruits, vegetables, and other food products grown without the use of synthetic pesticides, fertilizers, or genetically modified organisms.

Shareholder Vote

The right of shareholders to vote on corporate matters, typically exercised at shareholders' meetings.

Forced Transaction

A sale or trade that occurs under pressure, often lacking the free will or consent of one of the parties involved.

Dissolution

The official closure of an entity, such as a corporation or partnership, with legal processes to disband and distribute assets.