Suppose the dry cleaning industry is initially in long-run equilibrium but then experiences a sharp increase in the price of its inputs. Assuming that the industry is perfectly competitive, the increase in costs should:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, an increase in input costs will lead to higher production costs, causing some firms to exit the industry in the long run. This reduces supply, leading to an increase in the market price.

Suppose the Dry Cleaning Industry Is Initially in Long-Run Equilibrium