Asked by Carlos Iturralde on Jun 30, 2024

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In a competitive industry buffeted by demand and supply shocks,prices increase and decrease,but economic profits tend to revert to zero.Hence,profits are exhibiting

A) ​Above-average return
B) Positive earnings
C) Mean reversion
D) ​None of the above

Economic Profits

Profits exceeding the opportunity costs of the inputs used in the production process, an indicator of efficiency and effectiveness in resource utilization.

Mean Reversion

Suggests that performance eventually moves back toward the mean or average.

Demand And Supply Shocks

Unexpected events that cause sudden and significant changes in the demand or supply of goods and services in the economy.

  • Absorb the essence of economic profits and their movement to zero in the long-duration within competitive marketplaces.
  • Explain how market prices adjust to shocks in supply and demand in competitive industries.
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DR
Daniela RodriguezJul 03, 2024
Final Answer :
C
Explanation :
The given scenario describes a situation of mean reversion where profits tend to revert to zero despite temporary increases or decreases in prices. Hence, option C is the best choice. Option A and B are incorrect as they mention above-average returns and positive earnings, which are not sustainable in the long run in a competitive industry. Option D is also incorrect as we have a specific scenario mentioned in the question.