An increase in the demand for a product and a reduction in its costs of production would
A) decrease the proﬁts of producers.
B) encourage ﬁrms to leave an industry.
C) encourage ﬁrms to enter an industry.
D) cause a shortage of the product.

Question

Quizplus · Accepted Answer

An increase in demand for a product and a reduction in its cost of production would encourage firms to enter an industry. This is because increased demand means higher sales and increased profits, while reduced production costs lead to higher profit margins. Therefore, new firms would be drawn to the industry as it becomes more profitable, leading to increased competition and potentially lower prices for consumers.

An Increase in the Demand for a Product and a Reduction