Assume that a constant-cost,perfectly competitive market is initially in long-run equilibrium.After all long-run adjustments are made,which of the following would occur as a result of an increase in the price of a complement to this industry's product?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms have no market power and therefore cannot increase prices. As a complement to the industry's product increases in price, the production cost of the complementing good within the industry will also increase. This will lead to a decrease in supply, causing the market quantity to fall in the long run. However, because the market is already in long-run equilibrium, prices have already been adjusted to reflect the costs of production associated with the complement. Therefore, the market price will not change, but the market quantity will fall. Hence, option C is the correct choice.

Assume That a Constant-Cost,perfectly Competitive Market Is Initially in Long-Run