Question

Question 1

1. Below-normal profits signal a need for industry

   	1.	regulation
   	2.	contraction
   	3.	expansion
   	4.	wage increases

Answer 1

Ans: Contraction.

Explanation:

Profit palys an important role in a markrt economy. If firms in an industry earn above normal profit (i.e., positive economic profit), it is a signal for industry expansion (i.e., new firms will enter into the industry) and aggregate output in the industry will increase. On the other hand, if firms in an industry earn below normal profit (i.e., negative economic profit), it is a signal for industry contraction (i.e., some of the existing firms will exit the industry) and aggregate output in the industry will decrease.

Thus, option [2] is correct answer.