Question

The U-pick berry market is perfectly competitive. Suppose that all U-pick blueberry farms have the same cost curves and all are making an economic profit. What happens as time passes? What is the long-run equilibrium outcome?

Answer 1

As the U-pick berry market is maximizing profits and the firms are earning positive economic profits in the short run,then in the long run, this will attract new firms to the market.

The entry of new firms will increase the market supply which will decrease the market price and the economic profits of the firms will decrease.The new firms will keep entering the market until all the firms in the market are earning zero profits so that there is no incentive for new firms to enter the market.

In this case the new equilibrium position is where all the firms will earn a normal profit and earn zero profits as the Price will be equal to the minimum of the ATC so that total revenue=total cost and the existing firms will have no incentive to leave the market and the new firms will have no incentive to enter the market.