Suppose ethanol is produced in a perfectly competitive market.If a subsidy is paid to ethanol producers,the number of producers in this market will ________ in the long run.

Question

Quizplus · Accepted Answer

When a subsidy is paid to ethanol producers, their production costs decrease, enabling them to sell their product at a lower price while still making a profit. This in turn will likely increase demand for ethanol, as consumers are incentivized to purchase the lower-priced product. As a result, existing producers may expand their operations to meet the increased demand and new producers may enter the market, attracted by the potential for profit. Therefore, the number of producers in the market is likely to increase in the long run.

Suppose Ethanol Is Produced in a Perfectly Competitive Market