In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct?
A) An increase in demand will cause the short-run price to rise above $23, but in the long run, the price will return to $23.
B) An increase in demand will cause profits to rise and firms to enter the industry until profits return to normal.
C) A decrease in demand will cause market price to fall below average cost and thus firms will earn negative profits.
D) All of the answers are correct.

Question

Quizplus · Accepted Answer

In a constant cost industry, any changes in demand will initially affect prices and profits, but in the long run, entry or exit of firms will return the price to the original level, and profits to normal.

In a Constant Cost Industry, the Market Price and Average