If the market demand for a product decreases in a competitive market, then the quantity supplied by an individual firm will: A) decrease and firms will enter the market in the long run. B) decrease and firms will exit the market in the long run. C) increase and firms will enter the market in the long run.
B). When the demand reduces, the equilibrium point on D/S supply will shift down and left. So both the price and quantity will reduce. As a result, firms start facing economic losses and eventually some of them will exist the market.
Doesn’t sounds right. It should be neither of the above because in the long run we all are dead. Seriously, I concurred with johnbernke that quantity supplied in the industry will fall in the long run with price returning back to normal. However, individual firm should supply back at the same quantity.
I think quantity for individual firm would be the same while some firms exit the market… But since it is a price taker market and demand is perfectly elastic (horizontal)… quantity will go down meaning demand will meet the supply curve of individual firm at a lower quantity.