A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. This causes the marginal revenue curves for existing firms to shift __________ and for these firms to produce __________ output. Some of the existing firms will end up __________.

Question

Quizplus · Accepted Answer

A decrease in market demand reduces the price at which goods are sold, causing the marginal revenue curves for existing firms to shift downward. In order to maximize profits, the firms will produce less output. Some of the existing firms may not be able to cover their fixed costs and will therefore exit the market.

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