Suppose That Pasta Is Produced Under Conditions of Perfect Competition

Multiple Choice

Suppose that pasta is produced under conditions of perfect competition and that the constant-cost industry is initially in long-run equilibrium. Now suppose there is an increase in the price of wheat, which is a key ingredient in producing pasta. Further assume that the price elasticity of demand for pasta is -1.8. In the long run, we would expect to see:

A) new firms entering the industry.
B) firms leaving the industry.
C) no entry or exit, since neither is possible in perfect competition.
D) not enough information is given to answer the question.