Question

Suppose that a perfectly competitive industry is in long-run equilibrium. Every firm is producing at minimum average total cost, and all firms are identical. Demand in this industry decreases.Which of the following will not occur in the short run?A. Firms will produce less.B. Firms will exit the industry.C. The price will fall.D. The industry will produce less.E. Profits will be negative.

Answer 1

Answer:

B. firms will exit the industry

Explanation:

When the firms is producing at the minimum average total cost, the amount of profit margin that they get tend to be high. This means that they can fulfill their target profit even by producing less amount of product.

Even when the demand in the market is decreased, Such firms will most likely accumulated enough profit to survive for a long period of time before they go bankrupt. This is why the firms is very unlikely to exist the industry in a short run.