Assume a perfectly competitive industry is in long-run equilibrium at a price of $20. If this industry is a constant-cost industry and the demand for the product decreases, long-run equilibrium will be reestablished at a price
A) greater than $20.
B) less than $20.
C) of $20.
D) either greater than or less than $20 depending on the magnitude of the decrease in demand.

Question

Quizplus · Accepted Answer

In a constant-cost industry, when demand decreases, firms will exit the market in the long run, leading to a decrease in supply. This process continues until the price returns to the original equilibrium price of $20, as the cost of production does not change with the scale of output.

Assume a Perfectly Competitive Industry Is in Long-Run Equilibrium at a Price