Lenora and Uma's Dog-Grooming Business Economic Profits Scenario

Understanding Pawkeepsie Groomers Business Model

Lenora and Uma own a dog-grooming business in upstate New York, called Pawkeepsie Groomers. The dog-grooming service market in which they operate is perfectly competitive. Pawkeepsie Groomers follows normal cost curves, with the marginal cost (MC) curve intersecting the average variable cost (AVC) at $14 and the average total cost (ATC) at $22.

Now, let's analyze the scenario to determine under what market price Pawkeepsie Groomers will make positive economic profits.

Economic Profits Scenarios

According to the information provided, Pawkeepsie Groomers will make positive economic profits if the market price is:

  • a. $14
  • b. between $14 and $22
  • c. below $14
  • d. $22
  • e. above $22
What market price range will result in Pawkeepsie Groomers making positive economic profits?

Solution and Explanation:

The Short run supply curve: In a perfectly competitive market, the supply curve is a portion of the rising part of the marginal cost curve, which lies above the minimum of the average variable cost curve. Given that Pawkeepsie Groomers' average variable cost is $14, the short run supply curve would be the portion of the marginal cost curve that lies above $14. Therefore, to make positive economic profits, the market price needs to cover costs above the average variable cost level of $14.

Thus, the correct option from the given options is a. $14.

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