A bakery is one of many that operate in the bread industry. The market demand curve for bread is downward-sloping. The bakery incurs fixed costs and has an upward-sloping marginal cost curve. Which of the following statements is correct?

a. The bakery can raise the market price by constraining its production.

b. The bakery always makes a positive economic rent.

c. The bakery's supply curve is horizontal.

d. The bakery faces a flat demand curve.

Question

Itzel Wyatt

Business

9 January, 17:33

A bakery is one of many that operate in the bread industry. The market demand curve for bread is downward-sloping. The bakery incurs fixed costs and has an upward-sloping marginal cost curve. Which of the following statements is correct?

a. The bakery can raise the market price by constraining its production.

b. The bakery always makes a positive economic rent.

c. The bakery's supply curve is horizontal.

d. The bakery faces a flat demand curve.

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Answers (1)

Know the Answer?

Philip Archer · Answer 1

Answer: (d.) The bakery faces a flat demand curve.

Explanation:

The bakery faces a flat demand curve because a firm in a perfectly competitive market is a price taker and the demand curve for a firm is equal to the price the supply curve is a part of Marginal cost above Average variable cost, so the supply curve is upward sloping. The bakery is in the perfectly competitive market so it can earn positive, negative or zero economic profit in the short run and zero economic profit in the long run.