Firms Are Making Profits in a Decreasing-Cost Industry

question 127

Multiple Choice

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.

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Definitions:

Cost Method

An accounting approach for investments, where the investment is recorded at cost and adjusted only for dividends received, impairments, and certain other limited circumstances.

Consolidated Statement

A financial report that combines the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries.

Land Holding

Real estate or land owned by an individual or entity, including the natural resources and rights that come with the property.

Unrealized Profit

Profits that have been earned but not yet realized through a transaction, often related to investments that have increased in value but have not been sold.