Figure 9-10
In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?
A) a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry.
B) an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry.
C) a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry.
D) an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry.

Question

Figure 9-10 
In Figure 9-10, the movement from points A to B to C can best be explained by which of the following factors?
A) a decrease in demand, followed by the entry of new firms and an expansion in supply in a constant cost industry. 
B) an increase in demand, followed by the entry of new firms and an expansion in supply in an increasing cost industry. 
C) a decrease in demand, followed by the exit of firms and a decline in supply in an increasing cost industry. 
D) an increase in demand, followed by the exit of firms and a decline in supply in a constant cost industry.

Quizplus · Accepted Answer

The movement from point A to B indicates an increase in demand, which leads to an expansion of supply as new firms enter the industry in an increasing cost industry. The movement from point B to C indicates a further increase in demand, leading to further expansion of supply. However, the industry becomes more costly to operate in, leading to a steeper slope of the supply curve.

Figure 9-10 In Figure 9-10, the Movement from Points a to B