Question

Suppose a purely competitive, increasing-cost industry is in long-run equilibrium. Now assume that a decrease in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price:__________.
a) and industry output will be less than the initial price and output.
b) will be greater than the initial price, but the new industry output will be less than the original output.
c) will be less than the initial price, but the new industry output will be greater than the original output.
d) and industry output will be greater than the initial price and output.

Answer 1

Answer: and industry output will be less than the initial price and output

Explanation:

From the question, we are informed that a purely competitive, increasing-cost industry is in long-run equilibrium and it was assumed that there is a reduction in consumer demand.

After all resulting adjustments have been completed, the new equilibrium price and industry output will be less than the initial price and output.

Due to the reduction in demand, the new equilibrium price will be less as the firm will want to increase the demand likewise there'll be a reduction in the output from the former output.