In a Constant Cost Industry, the Market Price and Average

question 11

Multiple Choice

In a constant cost industry, the market price and average costare 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.

---

Definitions:

Neurons

Specialized cells in the nervous system that transmit information through electrical and chemical signals.

Negative Feedback System

A regulatory mechanism in which a change in a system's output acts to stabilize or reduce further change.

Positive Feedback System

A system in which a change in some steady state triggers a response that intensifies the changing condition. Compare with negative feedback system.

Set Point

A theory suggesting that the body regulates physiological functions, such as temperature or weight, around a specific homeostasis level or 'set point'.