Question

When a firm is in a constant-cost industry, a decrease in demand will result in economic __________ (losses or profits) . This will cause ___________ (exit from or entry into) the industry, resulting in _________ (an increase or a decrease) in supply over time. This long-run adjustment will eventually cause the price level to _________ (increase, decrease or remain constant) so that it eventually ____________ (return to the level it was, occur at a higher level than or occurs at a lower level than) before the demand shift. There will be firms ___________ (the same number of, more or fewer) in the industry. The long-run industry supply curve will be ____________ (horixontal, downward shifiting or upward shifting).

Answer 1

Answer: When a firm is in a constant-cost industry, a decrease in demand will result in economic losses. This will cause exit from the industry, resulting in a decrease in supply over time. This long-run adjustment eventually cause the price level to decrease so that it eventually occur at a higher level than before the demand shift. There will be firms fewer in the industry. The long-run industry supply curve will be downward shifting.