In a constant cost industry, the market price and average costare equal to $23. Therefore, which of the following is correct?

Question

Quizplus · Accepted Answer

In a constant cost industry, when demand increases, short-run prices may rise due to increased demand, but in the long run, new firms enter the market, increasing supply and bringing prices back to the original equilibrium, thus making option A correct. Option B is correct because the entry of new firms occurs until profits normalize, which is a characteristic of perfect competition in the long run. Option C is also correct because a decrease in demand would initially lead to prices falling below average costs, causing firms to incur losses. Since all options A, B, and C are correct, D is the correct answer.

In a Constant Cost Industry, the Market Price and Average