Assume a Purely Competitive Constant-Cost Industry Is Initially at Long-Run

question 89

Multiple Choice

Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed, the new equilibrium price

• A)and industry output will be less than the initial price and output.
• B)will be the same as the initial price, and the output will be less.
• C)will be greater than the initial, but the new output will be less.
• D)will be less than the initial price, but the new output will be greater.

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Definitions:

Overall Set

The complete or total collection of elements, items, or objects under consideration.

Anchoring

The tendency people have to unconsciously base, or “anchor,” the valuation of an item they are currently thinking about on recently considered but logically irrelevant information.

Irrelevant Information

Information that has no bearing on the decisions being made, providing no value to the decision-making process.

Anchoring

A cognitive bias that describes the human tendency to rely too heavily on the first piece of information offered when making decisions.