Beginning from the long-run equilibrium in an increasing-cost industry, if there is a substantial, permanent fall in demand for industry output, _____.

Question

Quizplus · Accepted Answer

In an increasing-cost industry, as firms exit the industry, the supply curve shifts to the left, causing prices to rise. However, in this scenario, there is a substantial and permanent fall in demand for industry output. This means that even as firms exit the industry, the reduction in demand will cause the price to fall below the initial long-run equilibrium level. As a result, the quantity produced will fall as well, ultimately reaching a new equilibrium at a lower price and lower quantity produced.

Beginning from the Long-Run Equilibrium in an Increasing-Cost Industry, If