Roger owns a small healih store that sells vitamins in a perfectly competitive market. If vitamins sell for \( \$ 12 \) per bottle and the average total cost per botile is \( \$ 12.50 \mathrm{at} \) the profir-maximizing output level, then in the long run a. more firms will enter the market. b. some firms will exit from the market. c. the equilibrium price per bottle will fall. d. sverage total costs will fall.
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In the long run, the situation indicates that Roger's store is incurring a loss of \( \$0.50 \) per bottle since the selling price \( (\$12) \) is less than the average total cost \( (\$12.50) \). This scenario signals to other firms that the market is not as profitable, leading some firms to exit the market. As these businesses leave, the overall supply will decrease, pushing prices upward towards a more sustainable level. If more firms leave the market due to losses, this shift will eventually stabilize prices as those remaining will begin to cover their costs better, possibly leading to a balance where average total costs converge with market prices. Hence, it’s a reminder that the dynamics of competition can influence market equilibrium significantly!
