Assume that a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases.Which of the following statements is not correct?

Question

Quizplus · Accepted Answer

In a perfectly competitive increasing-cost industry, if market demand suddenly increases, the equilibrium price will increase in the short run, leading to economic profits for existing firms. However, in the long run, new firms will enter the industry, increasing the supply and driving down the price until all firms earn zero economic profit. Therefore, existing firms will not earn economic profits in the new long-run equilibrium.

Assume That a Perfectly Competitive Increasing-Cost Industry Is in Long-Run