Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The new farmer will raise prices to maximize profits.
B
Existing farmers will lower their prices to compete with the new farmer.
C
The new farmer will be unable to sell potatoes due to too much competition.
D
The market will reach a new equilibrium with a lower price and potentially higher overall supply.
Understanding the Answer
Let's break down why this is correct
Answer
When a new farmer with lower costs enters the potato market, he can sell potatoes at a lower price than existing farmers. In a perfectly competitive market, prices are determined by supply and demand, so this lower price will attract more buyers. As more customers buy from the new farmer, he will increase his sales, and existing farmers may have to lower their prices to compete. Over time, this can lead to a decrease in overall market prices, which may affect the profits of the existing farmers. For example, if the new farmer sells potatoes for $1 per pound while others sell for $1.
Detailed Explanation
When a new farmer has lower costs, he can sell potatoes for less money. Other options are incorrect because Some might think the new farmer will raise prices to make more money; It's easy to think existing farmers will lower prices to compete.
Key Concepts
Perfect Competition
Market Equilibrium
Price Floors
Topic
Market Structures in Economics
Difficulty
medium level question
Cognitive Level
understand
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