Suppose the minimum possible price of constructing homes is $50 per square foot. As a result of a sharp drop in the demand for home construction, the equilibrium price of home construction falls to $40 per square foot. Assuming the home construction industry is perfectly competitive and there are no specialized inputs, firms will:
A. exit the industry, and the price will rise above $40 in the long run.
B. exit the industry, and the price will remain at $40 in the long run.
C. exit the industry, and the price will fall below $40 in the long run.
D. enter the industry as the price rises above $40 in the long run.
Answer: A
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