a perfectly competitive market is in long run equilibrium. at present there are
ID: 1229144 • Letter: A
Question
a perfectly competitive market is in long run equilibrium. at present there are 100 identical firms each producing 5000 units of outputs. the prevailing market pricde is $20. assume that each firm faces increasing marginal cost .now suppose there is sudden increase in demand for industrys product which causes the price of goods to rise to $24 .which of the following desribes the effect of this increase in demand on a typical firm in the industry
a. in the short run the typical firm increases its output and makes an above normal profit
b. in the short run the typical firm output rermians the same but because of the higher price its profits increase
c. in the shortrun the typical firm increases its output but its total costs also rises hence the effect on the firm profit cant be determined without more info
d. in the shortrun the typical firm increaes its output but its total costs also rises resulting in no change profit
Explanation / Answer
A perfectly competitive market is in long-run equilibrium. At present there are 100 identical firms each producing 5,000 units of output. The prevailing market price is $20. Assume that each firm faces increasing marginal cost. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24. Which of the following describes the effect of this increase in demand on a typical firm in the indus¬try? b. In the short run the typical firm's output remains the same but because of the higher price its profit increases.
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