What will happen to the quantity demanded of Starbucks coffee if the price of their coffee drops from $1 to $.50 per ounce? Why?
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Ответ:
Perfectly elastic
Explanation:
A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.
In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.
Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.
the market demand is perfectly elastic because goods in a perfect competition are identical, if a producer increase its price, consumers would stop demanding for the producer goods and shift to another producer.