Question

Refer to Exhibit 23-9. Assume that demand increases from D1 to D2; in the new long run equilibrium, price settles at a level between P1 and P2 This means that the industry in question is a(n) __________-cost industry.

Answer 1

This Question is not complete.

Complete Question:

Refer to Exhibit 23-9. Assume that demand increases from D1 to D2; in the new long run equilibrium, price settles at a level between P1 and P2 This means that the industry in question is a(n) __________-cost industry.

a. Decreasing

b. Increasing

c. Constant

d. Marginal

e. Low

Answer:

b. Increasing

Explanation:

An increasing cost industry is an industry where the cost of producing goods increases, due to the emergence of new industries.

As the entrance of new industries continue to increases, raw materials and supplies become very scarce, this causes the competition between the companies to increase.

An Increasing cost industry is an examples of a perfectively competitive industry. One of the major factors that can cause the emergence on an increasing cost industry is the increase in the demand of goods which results in the increase in production cost.

Examples of Increasing cost industries are industries that produce:

a. Gold

b. Copper

c. Silver

The supply of raw materials required for production by an increasing cost company is going to be available in small quantities and also very scarce therefore we can say the supply of raw materials is finite or limited.