If the demand increases for the product of an increasing-cost industry: short-ru

Question

If the demand increases for the product of an increasing-cost industry:

short-run price goes up, and long-run price goes up

short-run price goes up, but long-run price falls

long-run output goes up, but short-run price remains constant

long-run output goes up, but long-run price may go up or down

short-run output goes up, but long-run output may go up or down

short-run price goes up, and long-run price goes up

short-run price goes up, but long-run price falls

long-run output goes up, but short-run price remains constant

long-run output goes up, but long-run price may go up or down

short-run output goes up, but long-run output may go up or down

Explanation / Answer

Since with the exitence of economic profit attracts new firms but because it is an increasing cost industry, so new entering firms increased demand for resources increases the cost of prouduction and increases each firm MC and ATC. Since the entry of the new firms also shifts the short-run industry supply curve outward and the supply of the output increases in the short run.

As it is explained that short-run output goes up but it is not clear about the long-run . In the long run output may goes up or down it will depends on the profit in the long-run and number of firms in the long-run.

Hence it can be said that If the demand increases for the product of an increasing-cost industry, then

short-run output goes up, but long-run output may go up or down.

Hence option e is the correct answer.

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