Two farms compete in the same market place but have organized themselves differently. One farm is highly mechanized (high upfront cost, but low running costs) while the other farm has high running costs (labor) but very little upfront capital costs. Their average costs (fixed costs plus variable costs) are comparable or largely indistinguishable. In the long run, what configuration would you expect in the market?

A

The farm with higher variable costs will dominate because their upfront capital costs are low and they do not have a high debt load.

B

Since their average costs are the same, they will have equal market share.

C

The mechanized farm will dominate because it has a value gap advantage because of lower cost.

D

The mechanized farm will have a larger market share because they are capital intensive with deep pockets