Suppose That a Competitive Market Is Initially in Long-Run Equilibrium

question 41

Multiple Choice

Suppose that a competitive market is initially in long-run equilibrium. Which of the following are the most likely results of a decrease in market demand?

• A)Some existing firms will produce more while some other firms will exit the market so that the market supply curve will remain the same.
• B)Existing firms will produce less and some firms will exit the market so that the market supply curve will shift to the left.
• C)Existing firms will produce more and new firms will enter the market so that the market supply curve will shift to the right.
• D)Existing firms will produce less while new firms will enter the market so that the effect on the market supply curve is uncertain.
• E)Nothing will change in the market.

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Definitions:

Diminishing Marginal Returns

A principle in economics where each additional unit of input results in a smaller increase in output after a certain point, common in production processes.

Total Revenues

The sum of all earnings or income generated by a business or entity from its operations, before any deductions or expenses are taken into account.

Forgone Entrepreneurial Income

The potential earnings that an entrepreneur sacrifices by choosing to operate their business instead of working elsewhere for a salary.