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 A to B shows an increase in demand, which leads to the entry of new firms and an expansion in supply, as shown by the shift in the supply curve from S1 to S2. The movement from B to C shows that this industry is operating in an increasing cost industry because the entry of new firms has caused the cost of production to increase, leading to a smaller expansion in supply.

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