Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the market price will _______ and the output of a typical firm will _______ .

Question

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An increase in population increases the demand for haircuts, which leads to an increase in market price and output in the short run. In the long run, new firms will enter the market and existing firms will increase their capacity, leading to a return to long-run equilibrium with a higher market price and output.

Suppose That the Market for Haircuts in a Community Is