Practioe Final pdt Practice Final AKpd 47. A competitive market is in long-run e

Question

Practioe Final pdt Practice Final AKpd 47. A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price wil then rise to reach the new long-run equilibrium. c. not fall in the short run because firms will exit to maintain the price. d. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. Figure 9-5 The figure illustrates the market for tricycles in a country Price n 38 36 34

Explanation / Answer

Solution: fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium

Explanation: In the short under competitive market when demand fall prices also falls. Long-run equilibrium in competitive market exists when there are no incentive for firms to enter or exit the industry, thus in the long run, firms that are facing losses will shut down. Consequently prices increases and reach the new long-run equilibrium.

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