Assume a decreasing-cost industry that is initially in long-run competitive equilibrium. A decrease in demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry, causing the market supply curve to shift __________,which, in turn, will eventually cause the equilibrium price to be __________ before.

Question

Quizplus · Accepted Answer

In a decreasing-cost industry, a decrease in demand leads to lower prices and profits, prompting firms to exit. This exit reduces supply, shifting the market supply curve leftward. The reduced supply, against lower demand, eventually raises the equilibrium price above its initial level.

Assume a Decreasing-Cost Industry That Is Initially in Long-Run Competitive