Suppose the Minimum Possible Price of Constructing Homes Is $50

question 62

Multiple Choice

Suppose the minimum possible price of constructing homes is $50 per square foot. As a result of a sharp drop in the demand for home construction, the equilibrium price of home construction falls to $40 per square foot. Assuming the home construction industry is perfectly competitive and there are no specialized inputs, firms will:

• A) exit the industry, and the price will fall below $40 in the long run.
• B) exit the industry, and the price will rise above $40 in the long run.
• C) exit the industry, and the price will remain at $40 in the long run.
• D) enter the industry as the price rises above $40 in the long run.

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