Question

The poultry industry in Floriana is made up of numerous firms selling more or less homogeneous products. The smaller? players, however, give low priority to quality and hygiene. Goodrick? Corporation, one of the oldest firms in this? industry, has recently introduced its brand of processed chilled chicken called? "Better Chicken."? "Better Chicken" is priced higher than the local unbranded varieties and is promoted for its tenderness and hygienic methods of production and refrigeration.? "Better Chicken" has become very popular and Goodrick is now making substantial profits.? Consequently, some of the other firms have begun to introduce different varieties of processed poultry items.

Which of the following is most strongly supported by the information given? above?

A.Goodrick will operate on the inelastic portion of the demand curve.
B.Goodrick charges a price equal to the cost of producing an additional unit of? "Better Chicken."
C.The government of Floriana imposes a price ceiling on poultry items.
D.Following product? differentiation, Goodrick will operate with excess capacity.
E.The local firms selling unbranded chicken will be driven out of the market.

Answer 1

D. Following product? differentiation, Goodrick will operate with excess capacity.

Step-by-step explanation:

Due to the fact that there is product differentiation and resulting fresh entries which were attracted by profits in the short-run, in the long run Goodricke will create product by MR and MC equating, as well as the resultant price which will be just as the same to its ATC, thus economic profit will be zero. on the other hand, when the Price (= ATC) > MC, MR = MC, thus ATC curve is falling and not minimized at this point, which will lead to excess capacity.

Answer 2

Correct option is (D).

Following product? differentiation, Goodrick will operate with excess capacity.

Step-by-step explanation:

As a result of product differentiation and consequent new entry attracted by short-run profits, in the long run Goodrick will produce by equating MR and MC, and the corresponding price will be equal to its ATC, thus economic profit will be zero. However, when MR = MC, Price (= ATC) > MC, therefore ATC curve is falling and not minimized at this point, leading to excess capacity.