In a competitive industry buffeted by demand and supply shocks,prices increase and decrease,but economic profits tend to revert to zero.Hence,profits are exhibiting
A)Above-average return
B)Positive earnings
C)Mean reversion
D)None of the above

Question

In a competitive industry buffeted by demand and supply shocks,prices increase and decrease,but economic profits tend to revert to zero.Hence,profits are exhibiting
A)​Above-average return
B)Positive earnings
C)Mean reversion
D)​None of the above

Quizplus · Accepted Answer

The given scenario describes a situation of mean reversion where profits tend to revert to zero despite temporary increases or decreases in prices. Hence, option C is the best choice. Option A and B are incorrect as they mention above-average returns and positive earnings, which are not sustainable in the long run in a competitive industry. Option D is also incorrect as we have a specific scenario mentioned in the question.

In a Competitive Industry Buffeted by Demand and Supply Shocks,prices