Asked by Tiffany Matteson on Mar 10, 2024
Verified
Firms are making profits in a decreasing-cost industry. Which of the following statements describes what will happen in the long run?
A) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift down.
B) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift up.
C) Firms will exit this industry, causing the industry supply schedule to shift to the right and the LRAC curve to shift down.
D) Firms will exit this industry, causing the industry supply schedule to shift to the left and the LRAC curve to shift down.
Decreasing-cost Industry
An industry where costs per unit decline as the industry's output increases due to economies of scale.
LRAC Curve
The Long-Run Average Cost (LRAC) Curve represents the minimum average cost at which any output level can be produced in the long run when all inputs are variable.
Industry Supply
The total quantity of a good or service that is available for purchase in a given industry, at a given time and place.
- Comprehend the attributes of industries classified by constant-cost, increasing-cost, and decreasing-cost dynamics.
- Identify the direction of shifts in the long-run supply curve for different types of industries.
- Analyze the effects of firm entry or exit on the industry supply schedule and long-run average cost (LRAC) curve in different types of industries.
Verified Answer
DG
DAniel GarciaMar 10, 2024
Final Answer :
A
Explanation :
In a decreasing-cost industry, as more firms enter the industry due to profits, the increased competition and potential economies of scale cause the industry supply curve to shift right (increasing supply) and the long-run average cost (LRAC) curve for firms to shift downwards, indicating lower costs per unit.
Learning Objectives
- Comprehend the attributes of industries classified by constant-cost, increasing-cost, and decreasing-cost dynamics.
- Identify the direction of shifts in the long-run supply curve for different types of industries.
- Analyze the effects of firm entry or exit on the industry supply schedule and long-run average cost (LRAC) curve in different types of industries.