Question

Kate's ice cream store has been earning economic profits since the moment it opened, and has done so well that the newspaper wrote an article about her store. Kate is worried because:

a.) If the barriers to entry into the market for selling ice cream are high, many firms will enter, decreasing the market price.

b.)If the barriers to entry into the market for selling ice cream are low, many firms will enter, decreasing the market price.

c.) If the barriers to entry into the market for selling ice cream are high, many firms will enter and ATC will increase.

d.) If the barriers to entry into the market for selling ice cream are low, many firms will enter and ATC will decrease.

Answer 1

Kate is worried because of option "B"

If the barriers to entry in the market are low, many firms will enter and decrease the market price, which will lower the profit of Kate.

Because of low barriers to entry, more firm can enter the ice cream market easily, attracted to supernormal profit.