A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. This causes the marginal revenue curves for existing firms to shift __________ and for these firms to produce __________ output. Some of the existing firms will end up __________.

Question

Quizplus · Accepted Answer

When market demand falls in a perfectly competitive market, the marginal revenue curves for existing firms shift downward because each unit of output is now sold at a lower price. This leads firms to produce less output since it's less profitable to produce at previous levels. As a result, some firms, especially those with higher costs, may find it unprofitable to continue operating and end up exiting the market.

A Perfectly Competitive Market Is Initially in Long-Run Competitive Equilibrium