In the Short Run, a Decrease in the Market Demand

question 91

Multiple Choice

In the short run, a decrease in the market demand will cause a perfectly competitive firm to production ______and _______ .

• A)increase; earn economic profit
• B)decrease; incur economic losses
• C)increase; incur economic losses
• D)decrease; earn economic profit

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Definitions:

Perfectly Elastic

Describes a situation in which the quantity demanded or supplied changes by an infinite amount in response to any price change, depicted as a horizontal line on a graph.

Long-run Equilibrium

A state in which all factors of production are variable, leading to a situation where firms only earn normal profits and no incentives exist for entering or exiting the industry.

Short-run Equilibrium

The condition in which the quantity supplied equals the quantity demanded at a particular price level, but only over a short period.

Purely Competitive Firm

A company operating in a market where there are many buyers and sellers, with none being able to influence the market price significantly.