Assume the firms in a perfectly competitive industry are initially in long-run equilibrium and the cost of labor increases.In the short run,this will cause firms in the industry to:

Question

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An increase in the cost of labor will raise the firms' marginal cost curve, leading to a lower quantity produced and a higher price. However, since the increase in cost affects all firms uniformly, the market price will not change in the short run. As a result, firms will still earn zero economic profit in the short run, but will incur losses due to the higher cost of labor. Therefore, the firms will reduce output and incur a loss.

Assume the Firms in a Perfectly Competitive Industry Are Initially