Suppose that a firm in an industry subject to diminishing returns to scale is initially in long run equilibrium.Which of the following will not be part of the industry adjustment process to a permanent increase in demand?

Question

Quizplus · Accepted Answer

When there is a permanent increase in demand, some firms in the industry will temporarily make economic profits, which will attract new firms into the industry. As more firms enter, the industry supply will increase, and the long run equilibrium price will be higher than the initial equilibrium price. Therefore, all three options will be consequences of the industry adjustment process to a permanent increase in demand.

Suppose That a Firm in an Industry Subject to Diminishing