Assume the watermelon industry is perfectly competitive and in long-run equilibrium with a market price of $10. If the demand for watermelons increases in this decreasing-cost industry, long-run equilibrium will be reestablished at a price
A) greater than $10.
B) less than $10.
C) equal to $10.
D) either greater than or less than $10, depending on the number of firms that enter the industry.

Question

Quizplus · Accepted Answer

In a decreasing-cost industry, as output increases due to higher demand, the costs of production per unit for firms decrease. This leads to a downward shift in the supply curve, allowing a new equilibrium to be established at a lower price. Thus, if demand for watermelons increases, the long-run equilibrium price will be less than $10.

Assume the Watermelon Industry Is Perfectly Competitive and in Long-Run