Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly decreases.What might happen to the typical firm in the long run?

Question

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In a perfectly competitive increasing-cost industry, firms' long-run equilibrium occurs when their minimum average total cost is equal to the market price. When the market demand decreases, the market price decreases. As a result, the new equilibrium price will be lower than the original equilibrium price, and the typical firm will also experience a lower equilibrium price. However, the firm will still produce where its minimum average total cost equals the new lower equilibrium price. Therefore, the firm will reduce its output because it cannot produce at the same level with a lower price.

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