Exhibit 8-19 Long-run perfectly competitive industry
-As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be:

Question

Exhibit 8-19 Long-run perfectly competitive industry

-As shown in Exhibit 8-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be:

Quizplus · Accepted Answer

Initially, the industry is in long-run equilibrium at point A where the demand and supply curves intersect. When the demand curve shifts upwards to DS1U1B12S1U1B0, the price will increase from P1 to P2, resulting in economic profits for firms in the industry. This will attract new firms to enter the industry, shifting the supply curve to the right from S1U1B0 to S2U2B0. This will decrease the price back to P1 and the industry will reach a new long-run equilibrium at point C where the demand and supply curves intersect again. Therefore, the adjustment sequence will be A to B and then to C.

Exhibit 8-19 Long-Run Perfectly Competitive Industry