1.) Assume that the market starts in equilibrium at point W in panel (b). In the
ID: 1112878 • Letter: 1
Question
1.) Assume that the market starts in equilibrium at point W in panel (b). In the short run, an increase in demand from D0 to D1 will result in
rising prices and falling profits for existing firms in the market.
falling prices and rising profits for existing firms in the market.
rising prices and rising profits for existing firms in the market.
d.) falling prices and falling profits for existing firms in the market
2.) Assume that the market starts in equilibrium at point W in panel (b). In the long run, an increase in demand from D0 to D1 will result in
firms exiting the market.
firms entering the market.
a new long-run equilibrium at point X.
a new long-run equilibrium at point W.
a.rising prices and falling profits for existing firms in the market.
b.falling prices and rising profits for existing firms in the market.
c.rising prices and rising profits for existing firms in the market.
d.d.) falling prices and falling profits for existing firms in the market
2.) Assume that the market starts in equilibrium at point W in panel (b). In the long run, an increase in demand from D0 to D1 will result in
a.firms exiting the market.
b.firms entering the market.
c.a new long-run equilibrium at point X.
d.a new long-run equilibrium at point W.
Frice (a) JMc MMC ATC P3 02 Q3 QuantitExplanation / Answer
(1) (c)
As demand rises from D0 to D1, it intersects S0 at point Y in short run, increasing price to P3 and quantity to QY, and cost structure remaining unchanged, profit will increase as a result.
(2) (b)
Attracted by short run profit, firms will enter the market, since in a market with horizontal demand curve, entry and exit are free. Market supply will rise to S1, intersecting D1 at point Z in long run with higher quantity QZ but same price P2.
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