Table: Profit Margins This table shows that silver, copper, and gold were some of the most profitable industries in July 2011. (For each dollar of sales, profit for these industries is 35.1, 23.5, and 22.0 cents, respectively.) According to the elimination principle, what do you expect to happen to these profit margins in the long run?
A) Profit margins will increase because of increased entry.
B) Profit margins will increase because of increased exit.
C) Profit margins will decrease because of increased entry.
D) Profit margins will decrease because of increased exit.

Question

Table: Profit Margins  This table shows that silver, copper, and gold were some of the most profitable industries in July 2011. (For each dollar of sales, profit for these industries is 35.1, 23.5, and 22.0 cents, respectively.) According to the elimination principle, what do you expect to happen to these profit margins in the long run?
A) Profit margins will increase because of increased entry. 
B) Profit margins will increase because of increased exit. 
C) Profit margins will decrease because of increased entry. 
D) Profit margins will decrease because of increased exit.

Quizplus · Accepted Answer

The elimination principle suggests that industries with high profitability will attract new firms, leading to increased competition and a decrease in profit margins. Therefore, we can expect that the profit margins for silver, copper, and gold will decrease in the long run due to increased entry into the market.

Table: Profit Margins This Table Shows That Silver, Copper