Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed, the new equilibrium price
A) and industry output will be less than the initial price and output.
B) will be the same as the initial price, and the output will be less.
C) will be greater than the initial, but the new output will be less.
D) will be less than the initial price, but the new output will be greater.

Question

Quizplus · Accepted Answer

In a constant-cost industry, the long-run supply curve is perfectly elastic. After a decrease in demand, firms exit the market, reducing industry output, but the price returns to the initial level.

Assume a Purely Competitive Constant-Cost Industry Is Initially at Long-Run