Suppose there is a perfectly competitive market where free entry and exit of firms are allowed. Market is in equilibrium where Price is equal to minimum Average Cost. Due to sudden leftward shift in demand curve, the equilibrium number of firms will___________.

Increase Decrease Remains unchanged Can increase also or decrease also

Decrease

For a leftward shift of the demand curve, there will be excess supply at the given price. In response to this excess supply, some firms, which will be unable to sell their desired quantity at given price, will wish to lower their price. The price tends to decrease which will lead to the exit of some of the existing firms and the price will again reach initial level. Here, the new equilibrium number of firms will be less due to the exit of some existing firms.