In the perfectly competitive market for mobile phone production all firms have access to the same technology. Suppose that the mobile phone industry starts from a long run equilibrium and has decreasing marginal costs. Assume that a demand is affected by a negative shock. O In the short run, the number of firms doesn't change, prices drop and profits decline (become negative) O In the long run, the number of firms decreases (firms exit), prices increase and profits go to zero O In the short run, the number of firms, prices and profits remain same but in the long run all of these decline Both a) and b)
In the perfectly competitive market for mobile phone production all firms have access to the same technology. Suppose that the mobile phone industry starts from a long run equilibrium and has decreasing marginal costs. Assume that a demand is affected by a negative shock. O In the short run, the number of firms doesn't change, prices drop and profits decline (become negative) O In the long run, the number of firms decreases (firms exit), prices increase and profits go to zero O In the short run, the number of firms, prices and profits remain same but in the long run all of these decline Both a) and b)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In the perfectly competitive market for mobile phone production all firms have access to the same
technology. Suppose that the mobile phone industry starts from a long run equilibrium and has
decreasing marginal costs. Assume that a demand is affected by a negative shock.
In the short run, the number of firms doesn't change, prices drop and profits decline (become negative)
In the long run, the number of firms decreases (firms exit), prices increase and profits go to zero
O In the short run, the number of firms, prices and profits remain same but in the long run all of these decline
O Both a) and b)
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