If the market for tacos is a perfectly competitive decreasing cost industry, which of the following is also true?

Choose 1 answer:
(A) An increase in demand has no effect on prices in the long run.
(B) An increase in demand decreases prices in the long run.
(c) An increase in demand increases a typical firm's average total cost curve.
(D) An increase in demand has no effect on a typical firm's average total cost in the long run.
(E) An increase in demand increases prices in the long run.

Question

If the market for tacos is a perfectly competitive decreasing cost industry, which of the following is also true?

Choose 1 answer:
(A) An increase in demand has no effect on prices in the long run.
(B) An increase in demand decreases prices in the long run.
(c) An increase in demand increases a typical firm's average total cost curve.
(D) An increase in demand has no effect on a typical firm's average total cost in the long run.
(E) An increase in demand increases prices in the long run.

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of a Decreasing Cost Industry: A decreasing cost industry is one where the average total cost (ATC) of production decreases as the industry output increases. This typically occurs due to economies of scale and technological advancements. ‖ ‖ b ⋮ Long-Run Supply Curve: In a perfectly competitive decreasing cost industry, the long-run supply curve is downward sloping. This means that as demand increases, the industry can produce more at a lower cost, leading to a decrease in prices in the long run. ‖ ‖ c ⋮ Impact of Increased Demand: When demand increases in a decreasing cost industry, firms experience lower costs due to economies of scale. This results in a downward shift of the ATC curve for a typical firm. ‖ ‖ d ⋮ Long-Run Price Adjustment: Given the downward sloping long-run supply curve, an increase in demand will lead to a lower equilibrium price in the long run. ‖ ∻Answer∻ ⚹ (B) An increase in demand decreases prices in the long run. ⚹ ∻Key Concept∻ ⚹ Decreasing Cost Industry ⚹ ∻Explanation∻ ⚹ In a perfectly competitive decreasing cost industry, an increase in demand leads to lower average total costs for firms due to economies of scale. This results in a decrease in prices in the long run. ⚹◊What effect does an increase in demand have on a typical firm's average total cost curve in a perfectly competitive decreasing cost industry?⍭ Generate me a similar question◊

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