Asked by Alexandra Ibanez on May 01, 2024
Verified
If a purely competitive constant-cost industry is realizing economic profits,we can expect industry supply to:
A) increase,output to increase,price to decrease,and profits to decrease.
B) increase,output to increase,price to increase,and profits to decrease.
C) decrease,output to decrease,price to increase,and profits to increase.
D) increase,output to decrease,price to decrease,and profits to decrease.
Constant-cost Industry
An industry where input costs remain unchanged as industry output changes, leading to a flat supply curve.
Industry Supply
The total output of goods or services that producers in an industry are willing and able to sell at different price levels, during a certain time period.
- Recognize the conditions under which economic profits are realized and how they influence firm behavior and market entry or exit.
- Comprehend the effects of alterations in supply and demand on equilibrium prices and quantities in the market.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
A
Explanation :
In a purely competitive constant-cost industry, economic profits are a short-run phenomenon as firms can enter the market and drive down prices and profits. As profits attract new firms, the industry supply increases, resulting in an increase in output, a decrease in prices, and thus a decrease in profits. Therefore, the best choice is A.
Learning Objectives
- Recognize the conditions under which economic profits are realized and how they influence firm behavior and market entry or exit.
- Comprehend the effects of alterations in supply and demand on equilibrium prices and quantities in the market.
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