If the cost of production rises for all the firms in a perfectly competitive industry:

Question

Quizplus · Accepted Answer

If the cost of production rises for all the firms in a perfectly competitive industry, each firm will supply less output at any given price. This is because the higher cost of production would mean that firms need to charge a higher price to cover their costs, but this would mean that demand for their output would decrease as consumers switch to alternative, cheaper products. As a result, firms would reduce their output to avoid unsold inventory and losses.

If the Cost of Production Rises for All the Firms