Assume a purely competitive increasing-cost industry is initially in long-run equilibrium but then there is a decrease in consumer demand.After all economic adjustments to this new situation have taken place,product price will be:

Question

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In a purely competitive increasing-cost industry, a decrease in consumer demand will lead to a decrease in product price. As a result, firms will experience a decrease in profit and some firms may even exit the market in the long-run. In order to adjust to the new situation, firms will reduce their production levels and resources will flow out of the industry. This decrease in total output means that there will be a lower quantity of goods available in the market. Therefore, the answer is B- lower product price and lower total output.

Assume a Purely Competitive Increasing-Cost Industry Is Initially in Long-Run