Suppose that initially the price is $50 in a perfectly competitive market.Firms are making zero economic profits.Then the market demand shrinks permanently and some firms leave the industry and the industry returns back to a long-run equilibrium.What will be the new equilibrium price, assuming cost conditions in the industry remain constant?
A)$50.
B)$45.
C)Lower than $50 but exact value cannot be known without more information.
D)Larger than $45 but exact value cannot be known without more information.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the long-run equilibrium price is determined by the minimum point of the average total cost curve. Since cost conditions remain constant, the equilibrium price will remain at $50 even after the demand shrinks and some firms exit.

Suppose That Initially the Price Is $50 in a Perfectly