In a Constant Cost Industry, the Market Price and Average

question 9

Multiple Choice

In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct?

• A) An increase in demand will cause the short-run price to rise above $23, but in the long run, the price will return to $23.
• B) An increase in demand will cause profits to rise and firms to enter the industry until profits return to normal.
• C) A decrease in demand will cause market price to fall below average cost and thus firms will earn negative profits.
• D) All of the answers are correct.

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Definitions:

Customer Switching Costs

The expenses, both tangible and intangible, that consumers encounter when changing from one product or service provider to another.

Facilitating Function

Activities that help to ease and support the process of bringing products from the producer to the consumer, such as transportation, financing, and storage.

Providing Technical Support

Providing technical support involves offering assistance and guidance to users experiencing technical issues or difficulties with products or services, typically via phone, email, or chat.