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Figure 8.17
-(Figure 8.17) Initially, the constant-cost industry was in long-run equilibrium at point A when the demand for the good increased to D₂. How much output will be produced in the long run as a result of the demand increase?

Question

Use the following to answer question:
Figure 8.17

-(Figure 8.17) Initially, the constant-cost industry was in long-run equilibrium at point A when the demand for the good increased to D₂. How much output will be produced in the long run as a result of the demand increase?

Quizplus · Accepted Answer

At point A, the industry was in long-run equilibrium where the demand was DS0U0B0 and the output was 5,000. When the demand increased to D₂, the price increased from P0 to P1, and the firms earned supernormal profits. In the long-run, new firms would enter the industry, increasing the supply and lowering the price. The long-run equilibrium will be established at a point where the price is equal to the minimum point of the long-run average cost curve (LRAC). From the figure, we see that the LRAC curve intersects the demand curve at point C, where the output is 6,000. Therefore, the new long-run equilibrium output will be 6,000.

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