If There Is an Increase in Industry Supply While the Industry

question 61

Multiple Choice

If there is an increase in industry supply while the industry demand remains the same, then an individual firm in a perfectly competitive industry currently earning negative profits will see its profits

• A) increase.
• B) not change.
• C) decrease further.
• D) impossible to determine

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Definitions:

Monopolistic Competition

An arrangement in the marketplace where several businesses trade in goods that are akin but not completely identical, affording them limited market authority.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenues, beyond just accounting profits.

Average Cost

Average cost is the total cost of production divided by the number of goods produced, indicating the cost per unit of output.

Purely Competitive Firm

A firm that operates in a purely competitive market, characterized by many competitors, homogeneous products, and free market entry and exit.