Bob Runs a Pedicure Business in a Perfectly Competitive Industry

question 148

Multiple Choice

Bob runs a pedicure business in a perfectly competitive industry.He knows that he will break even if the price of pedicures is $15 but that he will have to shut down if the price is $11 or lower.If the market demand in the industry is P = 30 - (0.2) Q and the market supply is P = (0.2) Q,in the short run,Bob will:

• A)shut down since he cannot cover any of his variable costs.
• B)produce but make zero economic profit.
• C)produce with a loss since he is operating below his break-even level.
• D)shut down,although he is making a positive economic profit.

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Definitions:

Equipment

The tangible assets used in the operation of a business to perform specific tasks, excluding real estate and facilities.

Assets

Resources owned by a company that have economic value and can be used to meet debts, commitments, or legacies.

Income Statement

A financial statement that shows a company's revenues and expenses over a certain period, ultimately revealing net profit or loss.

Balance Sheet

A balance sheet that concisely represents a corporation's financial assets, liabilities, and the equity interests of its shareholders as of a definite date.