Assume a purely competitive decreasing-cost industry is in long-run equilibrium. If an increase in demand occurs, firms will
A)enter the industry, price will rise, and quantity produced will fall.
B)leave the industry and price and quantity will both fall.
C)enter the industry and price and quantity will both rise.
D)enter the industry, price will fall, and quantity produced will rise.

Question

Quizplus · Accepted Answer

In a decreasing-cost industry, as firms enter the industry in response to increased demand, economies of scale lead to lower average costs and thus lower prices. The quantity produced increases due to the higher demand and increased number of firms.

Assume a Purely Competitive Decreasing-Cost Industry Is in Long-Run Equilibrium