Suppose a perfectly competitive market is in long- run equilibrium when a permanent decrease in the market demand occurs. In the long run, which of the following definitely occurs?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a permanent decrease in market demand leads to a decrease in the price firms can charge for their products. This, in turn, reduces the profitability of all firms in the market. In the long run, firms that cannot cover their costs, including their opportunity costs, will exit the market. Thus, the number of firms in the market decreases.

Suppose a Perfectly Competitive Market Is in Long- Run Equilibrium