If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to
A) increase, output to increase, price to decrease, and profits to decrease.
B) increase, output to increase, price to increase, and profits to decrease.
C) decrease, output to decrease, price to increase, and profits to increase.
D) increase, output to decrease, price to decrease, and profits to decrease.

Question

Quizplus · Accepted Answer

In a purely competitive constant-cost industry, economic profits cannot be sustained in the long run due to the entry of more firms attracted by the profits. As new firms enter, the industry supply increases, leading to a decrease in price and profits. The output will increase as more firms join, but profits will decrease as price decreases. Therefore, the best answer is A.

If a Purely Competitive Constant-Cost Industry Is Realizing Economic Profits