Gary's Gym is currently earning a positive economic profit due to a price of $50 per membership, while its average total cost is $40. If eFitness enters the market and both gyms decide to lower their prices to $45 to attract more customers, what is the likely outcome for Gary's Gym in terms of economic profit in the short run?

In the short run, if eFitness enters the market and both gyms lower their prices to $45, Gary's Gym will see a change in its economic profit. Initially, Gary's Gym was earning a profit of $10 per membership, since its average total cost was $40 while the price was $50. However, with the new price of $45, the profit per membership drops to $5, because the average total cost remains at $40. This means that while Gary's Gym is still making a positive economic profit, it will be less than before, showing that competition can reduce profits even when they are still positive. For example, if Gary's Gym had 100 members, its profit would decrease from $1,000 to $500 due to the price drop.