If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to
A)increase, output to rise, price to fall, and profits to fall.
B)increase, output to rise, price to rise, and profits to fall.
C)decrease, output to fall, price to rise, and profits to fall.
D)increase, output to fall, price to fall, and profits to fall.

Question

Quizplus · Accepted Answer

In a purely competitive constant-cost industry, when firms are realizing economic profits, new firms are attracted to the industry. This increases the industry's supply, leading to higher output. The increased supply causes prices to fall, which in turn reduces the economic profits to a normal level.

If a Purely Competitive Constant-Cost Industry Is Realizing Economic Profits