Assume the tennis ball industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls increases and the industry experiences decreasing returns to scale, long-run equilibrium will be reestablished at a price

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In a perfectly competitive market, if demand increases, the price initially rises, attracting new firms into the industry. However, if the industry experiences decreasing returns to scale, costs per unit increase as output increases. This means that in the long run, the new equilibrium price will be higher than the original price to cover the higher costs per unit.

Assume the Tennis Ball Industry, a Perfectly Competitive Industry, Is