A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. By the time all adjustments have been made, price will be __________ its original level if the industry is a(n) __________ costs industry.

Question

Quizplus · Accepted Answer

In a decreasing cost industry, firms experience lower costs as the industry expands, leading to a situation where, after adjustments, the price can be above its original level if demand falls and the industry contracts. Conversely, in an increasing cost industry, costs rise as the industry expands, so if demand falls and the industry contracts, adjustments could lead to prices being below the original level after all adjustments have been made.

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