Holding all else constant, a decrease in the market demand for a product in a competitive market would cause:

Question

Quizplus · Accepted Answer

When market demand decreases, the marginal revenue (MR) curve of the firms shifts downward. This is because with less demand, firms will have to lower their prices to sell their products, resulting in a decrease in revenue for each unit sold. However, the ATC curve would not decrease as it is not directly affected by changes in market demand. An increase in price (choice B) is unlikely as firms would have to lower prices to stay competitive. The MC curve (choice C) would also not decrease as it represents the cost of producing each unit, which is not directly affected by changes in demand. An increase in profits (choice E) is unlikely as firms would have to sell fewer units at a lower price, resulting in lower revenue and profits.

Holding All Else Constant, a Decrease in the Market Demand