A Perfectly Competitive Market Is Initially in Long-Run Competitive Equilibrium

question 49

Multiple Choice

A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand falls. This causes the marginal revenue curves for existing firms to shift __________ and for these firms to produce __________ output. Some of the existing firms will end up __________.

• A)upward, more, increasing their plant size
• B)downward, less, exiting the market
• C)downward, more, purchasing more capital equipment
• D)upward, less, cutting fixed costs
• E)none of the above

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Definitions:

Perfect Competition

A market structure where many firms offer products or services that are similar, leading to a level playing field.

Product Differentiation

The act of setting a product or service apart from those in the market to enhance its attractiveness to a certain target group.

Demand Curves

A graphical representation showcasing the relationship between the price of a good or service and the quantity demanded by consumers at various price levels.

Over-Differentiated Products

Products that have too many variations or features, potentially confusing customers and reducing sales.