If all firms in an industry which is characterized by decreasing costs are charging a price equal to marginal cost, then an upward shift in demand in the long run will:
A)increase industry output and lower price.
B)decrease industry output and raise price.
C)alter neither industry output nor price.
D)result in much more competitive industry structure.
E)do none of the above.

Question

Quizplus · Accepted Answer

If all firms are charging a price equal to marginal cost, it means they are operating at the minimum point on their average total cost curve. As the demand increases, the firms will have to increase their output to meet the new demand. Since the industry is characterized by decreasing costs, the firms will be able to produce the additional output at a lower cost per unit. This will lead to an increase in industry output and a lower price.

If All Firms in an Industry Which Is Characterized by Decreasing