CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

In perfectly competitive industries, what is the most likely final long-run effect of a permanent decrease in demand?
A. Price decreases.
B. Economic profit decreases.
C. The number of firms decreases.
Explanation: A permanent decrease in demand in a perfectly competitive industry will, in the short run, cause the demand curve to shift to the left, causing prices to fall and creating losses for producers. As the fall in demand is permanent, eventually firms will leave the industry due to these economic losses. As firms leave the industry, the supply curve moves to the right, thus increasing prices back to an equilibrium where economic profit is zero.

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