Purely competitive industry X has decreasing costs and its product is an inferior good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

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In a recession, average incomes decline, leading to an increased demand for inferior goods (goods for which demand increases as income decreases). In a purely competitive industry with decreasing costs, this increased demand will lead to an increase in output. However, due to the decreasing cost nature of the industry, the increased output can be produced at a lower average cost, which means the price of the product does not necessarily increase and might even decrease or stay the same.

Purely Competitive Industry X Has Decreasing Costs and Its Product