Suppose antitheft auto alarms are produced in a price-taker market that is initially in long-run equilibrium. It is estimated that only 23 percent of all autos have alarms. Due to rising auto theft, Congress mandates alarms in every vehicle. Assume complete compliance. If the industry is an increasing cost industry, price will
A) increase in both the short run and long run.
B) decrease in both the short run and long run.
C) increase in the short run but not in the long run.
D) decrease in the short run but not in the long run.

Question

Quizplus · Accepted Answer

In an increasing cost industry, as demand increases due to the mandate, input prices rise, leading to higher costs and prices in both the short run and long run.

Suppose Antitheft Auto Alarms Are Produced in a Price-Taker Market