Suppose a perfectly competitive constant-cost industry is in long-run equilibrium when market demand suddenly falls.What happens to the industry in the long run?
A)It experiences no change form the original equilibrium
B)It experiences a higher equilibrium price and produces more output
C)It experiences a lower equilibrium price but produces more output
D)It experiences the same equilibrium price but produces more output
E)It experiences the same equilibrium price but produces less output

Question

Quizplus · Accepted Answer

In a perfectly competitive constant-cost industry, a fall in demand leads to a temporary decrease in price and output. In the long run, firms exit the market until the price returns to the original equilibrium level, but with less output due to fewer firms in the industry.

Suppose a Perfectly Competitive Constant-Cost Industry Is in Long-Run Equilibrium