Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically.The immediate result of this event is

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In a perfectly competitive market, firms are price takers and the market price is determined by the intersection of the industry demand and supply curves. When demand decreases drastically due to a health hazard, the industry demand curve shifts to the left, causing the market price to fall. Since firms are now receiving a lower price for their product, their revenue will decrease and some may not be able to cover their average total cost. Thus, the typical firm will suffer an economic loss in the short run. The other options are not likely to occur in this situation. The market supply would not increase since there is no change in the industry's cost or technology, the typical firm's average total cost curve would not shift downward since the health hazard does not directly affect the cost of production, and the typical firm's marginal cost curve would not shift to the left since there is no change in the cost or technology.

Assume That a Perfectly Competitive Market Is in Long-Run Equilibrium