Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success?

The price per bushel of corn will continue to increase, yielding higher profits.

Thus more firms will enter the market indefinitely.

Profits will become negative due to over farming, which will result in the corn farming industry going under.

Profits will be equal to zero. None of the above.

Question

Business

Silas

31 January, 10:43

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success?

The price per bushel of corn will continue to increase, yielding higher profits.

Thus more firms will enter the market indefinitely.

Profits will become negative due to over farming, which will result in the corn farming industry going under.

Profits will be equal to zero. None of the above.

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Answers (2)

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Timothy Wall · Answer 1

Profits will be equal to zero

Explanation:

Since we are dealing with a perfectly competitive market, which has no barriers to entry and exit, profits are only incurred in the short run not in the long run.

This occurs because super normal profits which are made in the short run will attract a lot of competitor firms, and since the customers have "perfect information", they will not mind switching from seller to seller, trying to beat prices down and get a better bargain. Hence, this presence of competitors will cause the price of corn to fall in the long run.

Thus, the high inflow of competition that will happen to the corn industry will cause the profits to be equal to zero in the long run.

Amelia Waters · Answer 2

The correct answer is C) Profits will be equal to zero.

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn-based ethanol fuel increased. What you can expect to happen in the long run for the corn industry given this recent success is "Profits will be equal to zero."

When we are referring to a perfectly competitive industry or market, modern economists establish that in this kind of industry it is the consumer the one who is going to receive the most benefits. In this scenario, there are no barriers for a company to enter or leave the industry, and there is no company strong enough to influence the price of products on its own. With this kind of competition, companies' profits are reasonable, not the kind of profits of companies that amazes fortunes.