If There Is a Decrease in Demand for a Product

question 156

Multiple Choice

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

• A)greater than its marginal cost.
• B)equal to its marginal cost.
• C)less than its marginal cost.
• D)greater than its average cost.

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Definitions:

Increasing-Cost Industry

An industry where production costs increase as output grows, often due to resource limitations or regulatory constraints.

Decreasing-Cost Industry

An industry in which average costs of production decrease as the industry grows larger, often due to economies of scale.

Long-Run Equilibrium

A state in which all factors of production and markets in an economy are in balance, and all firms in the market are earning normal profits with no inclination to enter or exit the market.

Internal Diseconomies

Increased per unit costs that occur when a firm or industry grows beyond a certain size, leading to inefficiencies.