Question 13

Farmers will enter the market, and the price of potatoes will decrease.

In the long run, positive economic profits in a perfectly competitive market attract new farmers to enter the market. As more farmers enter, the increase in supply leads to a decrease in the price of potatoes.

A) Farmers will exit the market, and the price of potatoes will decrease.

This option is incorrect because positive economic profits incentivize farmers to stay in or enter the market rather than exit. If farmers were to exit, it would typically be in response to losses, not profits.

B) Farmers will enter the market, and the price of potatoes will decrease.

This option is correct. The presence of positive economic profits will attract new farmers to the market, increasing the overall supply of potatoes. As supply increases, the market price will decrease until economic profits are eliminated.

C) Farmers will enter the market, and the price of potatoes will increase.

This option is incorrect. While farmers may enter the market due to positive economic profits, the increased supply resulting from this entry will actually lead to a decrease in the price of potatoes, not an increase.

D) Farmers will exit the market, and the price of potatoes will increase.

This option is incorrect for similar reasons to option A. Positive economic profits do not lead to farmers exiting the market; rather, they encourage entry, which increases supply and leads to a price decrease.

Conclusion

The correct answer is B, as it accurately reflects the behavior of farmers in a perfectly competitive market responding to positive economic profits. All other options incorrectly interpret the dynamics of supply and market entry or exit in relation to profit conditions. Thus, the understanding of market equilibrium and the effects of profit on supply is crucial in this context.