Asked by Earlicia Sexton on Jul 05, 2024
Verified
Assuming a downward-sloping demand curve,a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n) :
A) permanent increase in the price.
B) economic profit for firms in the short run.
C) increase in demand.
D) increase in firms' marginal revenue.
Production Costs
The total expense incurred in manufacturing a product or providing a service, including raw materials, labor, and overheads.
Marginal Revenue
The increase in revenue achieved by selling one additional unit of a product or service.
- Learn about the interaction among prices, the expenses of producing goods, and the supply chain within a perfectly competitive market scenario.
Verified Answer
ZK
Zybrea KnightJul 06, 2024
Final Answer :
B
Explanation :
A decrease in production costs will shift the supply curve to the right, causing a temporary increase in quantity supplied and a decrease in price in the short run. Firms will experience economic profits as long as price exceeds average total cost. In the long run, however, new firms will enter the market, increasing supply and driving down price until economic profit is eliminated. Therefore, there will be no permanent increase in price, increase in demand, or increase in firms' marginal revenue.
Learning Objectives
- Learn about the interaction among prices, the expenses of producing goods, and the supply chain within a perfectly competitive market scenario.