As existing firms exit an increasing-cost industry
A) the LRAC curve shifts down.
B) the LRAC curve shifts up.
C) the position of the LRAC curve doesn't change, but firms move down their LRAC curve.
D) the position of the LRAC curve doesn't change, but firms move up their LRAC curve.

Question

Quizplus · Accepted Answer

When existing firms exit an increasing-cost industry, the long-run average cost (LRAC) curve shifts down. This is because the exit of firms reduces the demand for industry-specific inputs, leading to lower input prices and thus lower costs for the remaining firms.

As Existing Firms Exit an Increasing-Cost Industry