Question

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny’s neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?

Answer 1

If the market is perfectly competitive, then Alex will sell all his lemonade. Only after Alex sold all his available lemonade stock, will Jenny start to sell lemonade. Sam will only be able to sell lemonade after both Alex and Jenny ran out of lemonade.