Asked by China lilian on May 23, 2024
Verified
If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to
A) increase, output to rise, price to fall, and profits to fall.
B) increase, output to rise, price to rise, and profits to fall.
C) decrease, output to fall, price to rise, and profits to fall.
D) increase, output to fall, price to fall, and profits to fall.
Constant-cost Industry
An industry in which the input prices and production costs remain stable even as the industry output changes.
Economic Profits
The surplus remaining after total costs are subtracted from total revenue, taking into account both explicit and implicit costs.
Industry Supply
The total output of goods or services that firms in a specific industry are willing and able to sell at various price levels.
- Gain insight into the mechanics of how supply and demand balance out to establish long-run market equilibrium in entirely competitive environments.
- Familiarize oneself with the details and impacts of constant-cost, increasing-cost, and decreasing-cost industries.
Verified Answer
SS
Sikander SinghMay 25, 2024
Final Answer :
A
Explanation :
In a purely competitive constant-cost industry, when firms are realizing economic profits, new firms are attracted to the industry. This increases the industry's supply, leading to higher output. The increased supply causes prices to fall, which in turn reduces the economic profits to a normal level.
Learning Objectives
- Gain insight into the mechanics of how supply and demand balance out to establish long-run market equilibrium in entirely competitive environments.
- Familiarize oneself with the details and impacts of constant-cost, increasing-cost, and decreasing-cost industries.