Suppose a perfectly competitive constant-cost industry is in long-run equilibrium when market demand suddenly increases.What would probably happen to a firm in this industry in the long run?
A)It would experience no change for the original equilibrium
B)It would experience a higher equilibrium price
C)It would experience a lower equilibrium price
D)It would experience the same equilibrium price but would reduce its output
E)It would experience higher average total costs and would reduce its output

Question

Quizplus · Accepted Answer

In a perfectly competitive constant-cost industry, an increase in demand will initially raise prices and profits, attracting new firms. However, in the long run, the entry of new firms will increase supply, bringing the price back to the original equilibrium level, with firms producing at the same output level as before.

Suppose a Perfectly Competitive Constant-Cost Industry Is in Long-Run Equilibrium