Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price
A)and industry output will be less than the initial price and output.
B)will be greater than the initial price, but the new industry output will be less than the original output.
C)will be less than the initial price, but the new industry output will be greater than the original output.
D)and industry output will be greater than the initial price and output.

Question

Quizplus · Accepted Answer

In a purely competitive, increasing-cost industry, a decrease in consumer demand leads to a lower equilibrium price and industry output as firms reduce production in response to lower demand, eventually reaching a new equilibrium with both lower price and output.

Suppose a Purely Competitive, Increasing-Cost Industry Is in Long-Run Equilibrium