Suppose that initially the price is $20 in a perfectly competitive market.Firms are making zero economic profits.Then the market demand shrinks permanently,some firms leave the industry,and the industry returns to a long-run equilibrium.What will be the new equilibrium price,assuming cost conditions in the industry remain constant?
A) $20
B) $16
C) Lower than $20 but exact value cannot be known without more information.
D) Larger than $20 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 $20.

Suppose That Initially the Price Is $20 in a Perfectly