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:

Future Earnings

The projected income a person or entity will receive from work or investments in the future.

Migration

The movement of people from one place to another, often across political boundaries, for the purpose of settling temporarily or permanently.

Wage Rate

The amount of money paid to an employee for a specific amount of work, typically expressed per hour or year.

Value Of The Total Product

The total market value of all goods and services produced by an economy over a specific period.