Question

If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to

Answer 1

Answer:

Option “A” Increase, output to increase, price to decrease, and profits to decrease.

Explanation:

Option A is the correct answer because the purely competitive industry is the one in which there are free entry and exit of firms. Generally, firms enter when there is economic profit in the industry. In this way, the economic profit of the industry will attract new firms to enter the industry. Accordingly, new firms will enter the industry. As a result of the entry of new firms in the market, the supply of goods and services (industry supply) will increase which will result in a decrease in the prices of the commodity. This decrease in price will result in lower profit.