Firms are making profits in a decreasing-cost industry. Which of the following statements describes what will happen in the long run?
A) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift down.
B) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift up.
C) Firms will exit this industry, causing the industry supply schedule to shift to the right and the LRAC curve to shift down.
D) Firms will exit this industry, causing the industry supply schedule to shift to the left and the LRAC curve to shift down.

Question

Quizplus · Accepted Answer

In a decreasing-cost industry, as more firms enter the industry due to profits, the increased competition and potential economies of scale cause the industry supply curve to shift right (increasing supply) and the long-run average cost (LRAC) curve for firms to shift downwards, indicating lower costs per unit.

Firms Are Making Profits in a Decreasing-Cost Industry