Assume the peanut industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for peanuts increases and this industry is a decreasing-cost industry, long-run equilibrium will be reestablished at a price
A) greater than $5.
B) less than $5.
C) equal to $5.
D) either greater than or less than $5, depending on the number of firms that enter the industry.

Question

Quizplus · Accepted Answer

In a decreasing-cost industry, as output increases, the costs of production decrease. When demand for peanuts increases, more firms will enter the industry, leading to an increase in supply. Over time, the increased competition and lower costs will lead to a new equilibrium price that is lower than the original $5.

Assume the Peanut Industry, a Perfectly Competitive Industry, Is in Long-Run