If an innovation lowers the marginal cost of production for firms in a competitive industry, then in the long run, the number of firms
A)increases and firms in the industry make normal profits.
B)does not change and firms in the industry make profits.
C)decreases and firms in the industry incur losses.
D)decreases and firms in the industry make profits.
E)decreases and firms in the industry make normal profits.

Question

Quizplus · Accepted Answer

When an innovation lowers the marginal cost of production, it initially increases profitability for firms, attracting new entrants to the market. Over time, the increased competition drives prices down, leading to normal profits for all firms in the long run.

If an Innovation Lowers the Marginal Cost of Production for Firms