If a competitive industry is characterized by increasing cost,which of the following will occur in response to an unexpected increase in demand?
A)New firms will enter the industry.
B)Economic profit will remain zero.
C)Input prices will remain constant.
D)The price of the product will remain unchanged.

Question

Quizplus · Accepted Answer

In a competitive industry with increasing costs, firms are only breaking even at the equilibrium level. An unexpected increase in demand would result in a shortage of goods in the market, driving up the price. As a result, economic profits will increase, creating an incentive for new firms to enter the industry. The input prices are not affected, and the price of the product will increase due to the shortage. Therefore, Choice A is the best answer.

If a Competitive Industry Is Characterized by Increasing Cost,which of the Following