In a constant-cost industry, an increase in demand will be followed by:
A) no increase in supply.
B) an increase in supply that will not change price from the higher level that occurs after the demand shift.
C) an increase in supply that will bring price down to the level it was before the demand shift.
D) an increase in supply that will bring price down below the level it was before the demand shift.
E) a decrease in demand to keep price constant.

Question

Quizplus · Accepted Answer

In a constant-cost industry, firms can increase their output without any increase in production costs, leading to an increase in supply in response to an increase in demand. This increase in supply will bring the price down to the level it was before the demand shift, as there is no increase in the cost of production. Therefore, Choice C is the best answer.

In a Constant-Cost Industry, an Increase in Demand Will Be