Assume the tennis ball industry, a perfectly competitive, increasing‐cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls DECREASES, 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 perfectly competitive, increasing-cost industry, a decrease in demand will lead to a decrease in the price of the product in the long-run equilibrium. As firms exit the industry due to lower demand, the supply curve shifts to the left, and the price decreases. Therefore, long-run equilibrium will be reestablished at a price less than $5. Hence, option B is the best choice.

Assume the Tennis Ball Industry, a Perfectly Competitive, Increasing‐cost Industry