CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Suppose that in the pizza delivery market, as the number of stores increases, prices and average costs change in the following manner: 1 store; price=$12, average cost=$6, 2 stores; price=$10, average cost=$7, 3 stores; price=$8, average cost=$8, 4 stores; price=$6, average cost=$9. How many pizza delivery firms will enter this market in the long run?
A. 1
B. 2
C. 3
Explanation: In a competitive market, firms will continue to enter until the price equals the average cost.

User Contributed Comments 5

User Comment
soarer1 can someone pls explain?
umair soarer1---Firms will continue to enter until there is no longer a profit
Candy220 At the point where P = MC, you're earning 0 economic profit. 3 stores fit that scenario
jpducros 3 stores lead to no accounting profit. I doubt in the long run this situation is sustainable. We should naturally go back to 2 stores and I store would exit.
cebus So shouldn't it be 2 stores in long run since one will exit?
You need to log in first to add your comment.