FIGURE 4-3
-Refer to Figure 4-3, which shows a demand shift and the short-run and long-run supply curves for some product. In the new long-run equilibrium at EL, producersʹ revenue
A) is unambiguously lower than at ES.
B) could be higher or lower than at ES, depending on the price elasticity of demand.
C) is unambiguously lower than at E0.
D) could be higher or lower than at E0, depending on the price elasticity of demand.
E) is unambiguously higher than at ES.

Question

FIGURE 4-3
-Refer to Figure 4-3, which shows a demand shift and the short-run and long-run supply curves for some product. In the new long-run equilibrium at EL, producersʹ revenue
A) is unambiguously lower than at ES. 
B) could be higher or lower than at ES, depending on the price elasticity of demand. 
C) is unambiguously lower than at E0. 
D) could be higher or lower than at E0, depending on the price elasticity of demand. 
E) is unambiguously higher than at ES.

Quizplus · Accepted Answer

In the new long-run equilibrium at EL, the price will be higher than the original equilibrium E0, but it may or may not be higher than the short-run equilibrium price ES. The change in revenue for producers will depend on the price elasticity of demand. If demand is relatively inelastic, producers' revenue will be higher at EL than at ES, but if demand is relatively elastic, producers' revenue will be lower at EL than at ES. Therefore, the correct answer is B.

FIGURE 4-3 -Refer to Figure 4-3, Which Shows a Demand Shift and Shift