Suppose ethanol is produced in a perfectly competitive market.If a subsidy is paid to ethanol producers,the ethanol producers' profit will ________.

Question

Quizplus · Accepted Answer

In the short run, the subsidy will increase the profits of ethanol producers because they will receive additional revenue from the subsidy. However, in the long run, the subsidy will attract new firms to enter the market, which will increase the supply of ethanol and drive down the price. As a result, the profits of ethanol producers will ultimately reduce to zero in the long run.

Suppose Ethanol Is Produced in a Perfectly Competitive Market