Suppose a perfectly competitive market is in long-run equilibrium with a price o

Question

Suppose a perfectly competitive market is in long-run equilibrium with a price of $12. Then there is a permanent increase in demand. As a result, in the short run the market price ________ and in the long run the number of firms ________ and the price is ________ the price was in the short run.

rises; does not change; is equal to

rises; increases; higher than

rises; does not change; lower than

falls; decreases; is equal to

rises; increases; lower than

rises; does not change; is equal to

rises; increases; higher than

rises; does not change; lower than

falls; decreases; is equal to

rises; increases; lower than

Explanation / Answer

ANswer: rises; increases; lower than.

An increase in demand will raise the market price, a rise in prices and a higher profit attract more firms to he industry. As more firms enter, the profit margins falls and the price will decrease.

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