Answer to Question #47085 in Economics for Dion Lewis

Question

1. Suppose you own a home remodeling company. You are currently earning short-run profits. The home remodeling industry is an increasing-cost industry. In the long run, what do you expect will happen to

a. Your firm’s cost of production? Explain.
b. The price you can charge for your remodeling services? Why?
c. Profits in home remodeling? Why?

Answer 1

a. My firm’s cost of production will increase.
b. The price you can charge for your remodeling services will decrease, because
more producers will enter the market until everybody earn normal profits.
c. Profits in home remodeling will decrease and will be zero (normal), because
the price will decrease and costs will increase.