If a competitive price-taking firm is operating in long-run equilibrium and market demand suddenly falls, the short-run result will be
A) greater economic profit.
B) a normal profit.
C) lower average total cost.
D) lower average variable cost.
E) economic losses.

Question

Quizplus · Accepted Answer

In the short run, a sudden fall in market demand will lead to a decrease in the market price. Since the firm is a price taker, it will have to accept the lower price, which may fall below its average total cost, resulting in economic losses.

If a Competitive Price-Taking Firm Is Operating in Long-Run Equilibrium