The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will
A)shift the demand curve outward so that price will rise to the level of production cost.
B)cause the remaining firms to collude so that they can produce more efficiently.
C)cause the market supply to decline and the price of textiles to rise.
D)cause firms in the textile industry to suffer long-run economic losses.

Question

Quizplus · Accepted Answer

With many sellers leaving the industry, the market supply of textiles will decline. As a result, the price of textiles will rise due to increased demand for a limited supply. This means that the remaining firms in the industry may still struggle to make a profit in the long run. Option A is incorrect because the demand curve shifting outward would indicate an increase in demand, which is not suggested by the scenario. Option B is also incorrect because collusion is illegal and would not necessarily lead to increased efficiency. Finally, option D is incorrect because the scenario already states that firms in the textile industry have suffered economic losses, so this is not a prediction but a current reality.

The Textile Industry Is Composed of a Large Number of Small