If firms in a competitive industry are facing a continual decrease in demand for their product, in the long run
A) existing firms will modernize plant and equipment in order to increase efficiency.
B) capacity in the industry will gradually shrink as plant and equipment is not replaced.
C) newer, more efficient firms will enter the industry and earn normal profits.
D) existing firms will expand output as a means of recovering losses.
E) firms will begin advertising in order to increase demand for their product.

Question

Quizplus · Accepted Answer

As demand for the product continues to decrease in the long run, it is likely that some firms will be unable to cover their costs and will exit the industry. As a result, overall capacity in the industry will shrink as plant and equipment is not replaced.

If Firms in a Competitive Industry Are Facing a Continual