If competitive industry Z is making substantial economic proﬁt, output will
A) fall in industry Z and ﬁrms will likely leave the market.
B) fall in all industries except industry Z.
C) expand in industry Z, as more resources will move to that industry.
D) expand in industry Z, but no new ﬁrms will enter the market.

Question

Quizplus · Accepted Answer

If industry Z is making substantial economic profit, it implies that its return on investment is higher than in other industries. This pulls resources from other industries towards industry Z, since investors will want to invest in the industry with the highest return. Therefore, output in industry Z will expand, as more resources will move towards it.

If Competitive Industry Z Is Making Substantial Economic Proﬁt, Output