Question

More productive resources will tend to flow away from the production of cars if

A. economic profits for car makers exceed zero.
B. accounting profits for car makers are zero.
C. accounting profits for car makers exceed zero but economic profits are zero.
D. economic profits for car makers are zero.
E. economic profits for car makers are less than zero.

Answer 1

In the long run, more productive resources will tend to flow away from the production of cars if the economic profits for car makers are less than zero (option E).

Step-by-step explanation:

In the long run, more productive resources will tend to flow away from the production of cars if the economic profits for car makers are less than zero (E).

When car makers are earning negative economic profits, it indicates that the resources being used to produce cars could be more efficiently allocated elsewhere. In response to negative economic profits, car makers may reduce their production or exit the market, allowing the resources to be reallocated to more profitable ventures.

For example, if car makers are consistently losing money due to declining demand or high production costs, it may be more profitable for them to switch to producing a different product or invest in a different industry where they can earn positive economic profits.